Trade Update Jan 18th, 2012 at 2pm: GS did the unthinkable and beat Q4 earnings expectations and told an ok story to investors. The stock up 7.6% is fairly dramatically out-performing the implied move of a bit less than 5% and the 4 qtr average move of only about 3%. AS we head into the close and BAC expected to report Q4 earnings tomorrow morning that are more likely to resemble Citi’s from yesterday than GS’s from this morning, I will look to turn my long Feb 110 calls into a call spread.
With the stock at 105.10, I sold the Feb 115 calls at .75. Now I own the FEB 110/115 call spread for .40 ( I paid 1.15 on Friday for the Feb 110 calls, now I just sold the Feb 115 calls at .75, so I am only risking .40
My New Trade (not to be initiated as a new trade, the original call purchase was last week) and Break-Evens on Feb Expiration:
Long the GS Feb 110/115 Call Spread for .40
-Bought Feb 110 call for 1.15 on Jan13th
-Sold Feb 115 call at .75 on Jan18th
Break-Even On Feb Expiration:
Profits btwn 110.45 and 115 make up to 4.60, max gain at 115 or higher make full 4.60
Losses btwn 110 and 110.40 lose up to .40 with max loss of .40 below 110.00
Original Post Jan 13th, 2012: New Trade GS: If The Fix Is In for Bank Stocks, Then They May Soon Test the Post Thanksgiving Highs
While JPM is outperforming the implied move in the options market today following it’s Q4 earnings report, the stock is still trading above last Friday’s close, which in a lot of ways is fairly impressive considering the stock had run 10% in 8 trading days into the print. As I often say, it appears that the “Fix IS IN” for the bank stocks. The price action is obviously making it tough to remain short into BAC, GS, C and MS’s earnings next week. Most of the sector is doing a pretty good job shrugging off JPM’s revenue miss, and the path of least resistance may continue to be up.
Additionally, on a day that has been filled with rumors of S&P downgrades for European nations, the banks appear to take this in stride. Trust me I am not a fan of these stocks as investments until we get the next scare and decline, but if the market is going to shrug off S&P downgrades and bank earnings aren’t as bad as people expect, we could see a continuation of the sector rally next week.
I am not looking to Play GS for it’s Q4 report next week on Jan18th. The options market is implying about a 5% move which is rich to its 4 qtr average move of about 3%. GS has under-performed (only up 9% ytd) BAC this yr up 19% and C up 17% ytd. It could definitely play some catch up on a “not as bad as we thought” report and commentary, which could set the stage for a broader more sustained rally.
The chart sets up for a monster move back to the post Thanksgiving November Highs and its 200 day moving average on the slight bit of good news.
GS $98.60 Bought Feb 110 call for 1.15
Break-Even on Feb Expiration: 111.15 or higher profit, btwn 111.15 and 110 lose up to 1.10 and below 110 lose all 1.15
I DON’T THINK YOU HAVE TO CHASE THESE HERE, ESPECIALLY IN FRONT OF A THREE DAY WEEKEND AND THE RUMORED S&P DOWNGRADE OF SOME EUROPEAN COUNTRIES. THERE IS A GOOD CHANCE THAT IF THE MARKET AND GS AREN’T LOWER TUESDAY MORN THAT THE (edit: PREMIUM) IN OPTIONS WILL BE CHEAPER. (edit: due to decay and lower volatility)