Lose Money on First Trade After Fresh Start:
I try to be more conservative with a fresh start of a clean cash position of $30,000. I started with a trade shorting 750 shares of BAC yesterday in after market at $11.88. I decided not to follow the market actively and I got up at 8:00 AM PST this morning. Obviously I was kind of late. If I was up early and watching I might increase my short position when BAC went up above $12. So my first trade after my fresh start was at lost. I covered it at $11.96 and lost about $76 including commission. Fortunately I was following my trading guidelines and didn’t lose much.
Live a Low Beta Life:
That is it if I follow the guidelines I will lose less when the market goes against me but I will also earn less when the market is going with me. It is like I choose to live a life that has a low beta. The ups and downs will be small. I feel comfortable with a “low beta life” though. But you may not found it as exciting reading my blog. I will still make the decision to increase bet depending on market condition otherwise I will not be fully making use of the capital I have.
View on the Market:
I think the sentiment on financial shares is still bullish especially on Bank of America because of the analyst upgrade yesterday. Investors now have in mind the idea that bank shares could be double or triple in the next several years affected by some of the analyst’s opinion. Their upgrade is trying to reinforce the price target of Gold Sachs and Morgan Stanley. It was a laughable target then but investors are giving it a second thought.
Investors are trying to convince themselves that BAC is worth more than $12.00. The only thing dragging it was the other financial shares which was affected by the concern on unemployment rate. I feel Bank of America on its own would’ve shrugged off any bad news till $13.00. But frankly I believe the analyst was speaking for their firm’s large holding of bank shares. They would not wait till it double to exchange it with you for cash.
Anyway I was wrong on shorting BAC yesterday. At least I should’ve set up a short order at price above $12 yesterday so that even I don’t want to watch the market I can still make money. I think the DOW should try 8,900 next week so I will try to be on the long side. But I don’t want to long BAC. I want to long USB when it is below $18.00. I feel USB has very good support when it is under $18.
Again t is a losing day for me
Account Balance Change: -$76.74
I am confused about the difference between standard option and non-standard option. I originally thought that non-standard option was like European style option which could be exercised on expiration day only. If that was the case then the risk of writing this kind of option should be lower and the premium should be lower. But I found it is exactly the opposite. See the following July Bank of America options with strike price at $11. The premium for the non-standard option is a lot more. I was thinking selling the non-standard put option would make me a lot more money than the standard one.
Well I did some research and found I was wrong. Look at the following when I open up the JUL 11 PUT OPTION. It says “Non-Standard Option | $13.71 cash in lieu of shares, 85 Shares of BAC”..
This non-standard option is a result of Merger between Bank of America and Merrill Lynch. This non-standard option was originally Merrill Lynch option. Since the merge or acquisition between Bank of America and Merrill Lynch was 0.8595 shares of Bank of America common stock for each Merrill Lynch common share, a Merrill Lynch option contract (100 shares) became Bank of America option contract with 85.95 shares. Because the fraction share can not be traded Bank of America use cash to pay Merrill Lynch share holder during the merger. And the $13.71 cash reflected the fraction share conversion.
If you sell this put options, yes you could collect a lot more than selling standard one, but when the buyer exercise the put option and sell you BAC shares they only need to deliver 85 shares of BAC plus $13.71 cash to you to fulfill the contract. So yes you get a lot more upfront by selling them but you take the risk of getting a lot less when the put option contract is fulfilled. Risk and return are always proportionate
It is a wild ride today if you watched Bank of America’s stock price. It was down to $10.57 not long after market opening. Then it went up to $11.17. It went down again to $10.88. Half an hour later it went up to $11.10 and then went down again to $10.93. It was closed at its highest today at $11.30.
I did three trades today. The first was at pre-market. I bought 500 shares of BAC at $10.69 sold it ten minutes later at $10.92. I bought 500 shares of BAC again after opening at $10.65 and sold it again ten minutes later at $10.80. After that I spot PULTE HOMES, INC.(PHM). I bought 500 shares of PHM at $8.48 and sold it ten minutes later at $8.60. I made multiple small trades and made small gains today.
The market indexes also fluctuated between lost and gain multiple times. I made the trades early in the trading day and remained on the sideline watching most of the day. The thing I didn’t expect was both BAC and the indexes were closing higher than yesterday. Frankly none of the data released yesterday and today were good.
I felt good because I made some gain today. I felt not so good because the DOW was up 1.2% and my account was up less then 1%. I am glad that I remained calm and abided by my guidelines today. Many times I wanted to enter into BAC and PHM at a higher price but I didn’t because I have thought about the probability of a better entry point. I wanted to take the short side to do more trades when I saw the DOW was up 80 points toward closing and my gain was only $250. I didn’t because I should be happy if my gain was over $150.
The market went though a wild day but my mind didn’t
Account Balance Change: +$250.53
I post on Yahoo message board yesterday that BAC would advance together with other big banks today. It didn’t happen although other big banks like JP Morgan, Wells Fargo and US Bank Corp were indeed bid up by investors. 
Their closing price on last trading were proven to be attractive to many investors. They opened higher even before the better than expected consumer sentiment news.
However there was too much selling pressure on Bank of America. I lost patient and unloaded 2000 shares at $11.05 and unloaded another 2000 share at $11.10. In the mid of the day after I sold all my BAC shares its price ever went up above $11.20. I regret I sold but felt I took the right move when I saw how it closed. It seemed to me investors were not buying into the upgrades on Bank of America and they all viewed it as an opportunity to sell. The idea of more than 500 million new shares offered at $10 was not so easy to be digested in a few days. I thought about the scenario that people were going to take profit tomorrow on other big banks following today’s big run and decided not to keep BAC. The chance that Bank of America going further down tomorrow would be big
I did some trades back and forth on US Bank Corp after I sold Bank of America and at the end I maintained 300 shares of short position on USB which I entered at $19.04. I felt a run up of 6.5% was too much and I hope it will retreat a bit when it opens tomorrow morning. At the end of the day my account was up $133.84. It is really not an exciting day.
Added at 3:20PM
I looked at Bank of America’s price and thought it might be a good idea to buy some shares. So I bought 600 share of BAC at $10.94. I am thinking tomorrow if the banking sector tanks I will add some more BAC and take profit on USB. If the banking sector continue to advance I don’t think BAC will be left out again. We will see tomorrow.
Account Balance Change: +$133.84
The following is the reasoning behind Bank of America’s upgrade by Goldman Sachs and Morgan Stanley which is posted in yahoo message board by a person named Perry, screen name tothemoon8. It seems to me it is from a professional analyst’s mind and I found it is quite convincing. Of course I buy into his view because I am holding 4000 shares of BAC. The strange thing I feel is I should’ve read it from news release of Goldman Sachs or Morgan Stanley instead of from Yahoo message board. Anyhow it found it help me firming my mind. I will certainly hold.
BofA, according to Barrons, orchestrated a brilliant stock sale to raise the capital that was mandated by the FEDS. Apparently a tremendous number of mutual funds and hedge funds were interested in the offer which required a minimum of 1 million shares purchased and BofA sold these shares off the market so that it does not disturb the stock price. Next, they rejected the stock issues to any funds that had shorted BofA in the past year (call it a pay back if you will) and last they require the purchasers to hold the stocks for a substantial amount of time.
According to Goldman and Barrons BofA’s stock offerings will conclude and finalize by the end of today. By next week BofA will announce that it has raised over $25 Billion from it’s stock offerings and asset sales which with the earnings that they have ear marked will close the gap to their $35 Billion capital requirments. Here are some interesting facts:
1) When BofA took over Merryl they also inherited 51% of BlackRock Group which manages over $1.3 TRILLION in assets. Imagine the fees collected annually on this amount.
2) BofA could easily say couple of years from today complete an IPO on Merryl again and hold 60% majority stake. This will make BofA and its shareholders an astounding stock price gain.
3) Over ONE THIRD of all daily ACH transactions completed in the U.S. goes through BofA.
4) As of today BofA has a nest egg of $178 BILLION for loan loss provisions and cash. When in the near future the economy turns around, unused loan loss provisions have to be accounted backward and be recognized as earnings… this is the event that will take the stock to $40 level and beyond. Which is why Goldman has now added BofA to their conviction buy list and Morgan Stanely upgraded BofA with a $32 price target.
5) BofA is still tracking a $38 Billion + quarterly revenue for this quarter which will net them between $3.5 to $5 Billion in income again which is massive by any standard. Why? They are borrowing money from the Fed at ZERO percent rate and lending it out at 500% to 600% profit. Also, the mark to market accounting rules all but gone, BofA and other banks get the breathing room to recognize the loss of some assets over the next few years as their earnings and income pick up momentum and off sets those book value losses.
It is from If you are longs check out this facts
For the past few weeks I almost always playing on short position of the bank stocks because I believed the recent banks run up was too much and being on the short side had more chance to make money. I was right most of the time except the Well Fargo bet which caused me to lost more than nine thousand dollars. Now the Federal Reserve has presented to the market some reality and the world market retreated. I feel that maybe a buying opportunity and here is what I think.
There are still many market participants that are not convinced by the Fed and they are more buying into the view that the banks problem is behind us. They may also see it as a buying opportunity. It is the second down day after the Fed released it minutes. People hope the market will go up tomorrow.
The average offering price of Bank of America’s new shares was $10.77. From the past two days’ trading I saw the market hope to trade it at a price close to $12. Even today when the DOW dropped 1.5% its price only went down a little bit at close and it was traded higher in after market. In fact it was traded above yesterday’s closing price most of the time today.
I don’t plan to hold Bank of America for a long time. If a big sell off is coming I don’t think it will come tomorrow. There are no data released tomorrow. It doesn’t seem that the world market will be over reacting fallowing US market’s drop. I feel it is kind of save to hold BAC till tomorrow or maybe a bit longer.
I took a big long position in banks and I didn’t feel I am gambling. I am 80% sure I will make some profit of the position I have today. I shorted 2000 shares of BAC in the morning at about $11.85 but I covered it too early at about $11.75. Close to the end of the day I bought 2000 shares of BAC at about $11.45 and 1000 Share of USB at about $17.99. My account balance is up almost $200 when calculated using the closing price
Account Balance Change: +$195.35
