BAC Trade Update

by Dan April 18, 2011 10:54 am • Commentary

On Friday as prior to BAC‘s late day collapse, I suggested selling out of the APR Puts that were to expire in a few hours into a May 13/12 Put Spread, which I did for .25 when the stock was above 13.00.

-stock has since sold off almost 5% and the Put Spread I bought has more than doubled in value (approx worth .55).  My near-term target is ~12.00 and with the stock at 12.32 I want to take some profits and some risk off of the table.

-While I remain very bearish and think that the SPX will test 1250, I always want to move my feet on a portion of my positions when I get quick near term price movements (on winners or losers).

-important lesson here is that I took a loser (originally bought BAC apr 13/14 strangle, then just bought more Puts as stock got closer to 13), and turned it into a nice winner (for now) by sticking with my thesis and not being lazy, I rolled my thesis on expiration…..A lot of market participants get lazy and put off till the next week.  Well this is one instance where I am happy that I was engaged on Friday and moved some Apr exposure to May.

ORIGINAL POST FRIDAY APRIL 15, 2011:

UPDATE April 15, 2011 @ 8:30am: BAC reported generally disappointing, but not unexpected Q1 resultsthis morning.  Conference call starts now and the stock is actually trading up a little in the pre-market (I expect this to reverse)…..My sense: if JPM was any guide then the call is not likely to help appease investors’ fears about a potentially weaker environment for money center banks in the coming quarters.  The big difference between BAC and JPM is that JPM was trading not far from 52 week highs and BAC couldn’t get out of its own way as it approached its earnings date….So a lot of the bad news is in the stock…..

SO NOW WHAT? trade ideas listed below (from March 31, 2011) are going to be hard to earn out at this point as the stock is so far away from the call strike of 14, so your only hope in the Strangle or the Put purchase is to get a big downward move throughout the course of the day…..Strangles are generally low probability plays, and when done around events with little time to expiration you better have some solid conviction that the stock will move or be prepared to lose all or most of your premium outlay.

-I would be very surprised to see BAC make a solid move higher in the near-term and would actually see any strength today on short-covering met with long selling…..I think the stock reverses though out the day and closes below 13, This chart looks like it has 12.00 written all over it……I will look to roll my April 13 puts that I own to a May 13/12 Put Spread.