Sunday, April 11, 2010

Prince and the Paupers

Sorry for the BBB's absence, but at least my parting recos have left you up at least 60% if you bought Jan 11 or 12 Citi calls. I also added C Sept $5 calls and those went up over 100% this week.

Speaking of Citi, and more fuel for backing this government owned bank (or is it the other way around?), former CEO, Chuck Prince, ousted for running Citi into the ground in 2007, testified before Congress this week. After blaming Greenspan, the economy, the ratings agencies, and even his top employees for Citi's demise, Prince was asked, "What were you getting paid for?" There was ample evidence that Prince was aware of subprime exposure in the fall 0f 2006, and certainly by early 2007. Prince, in all of his smugness, concluded by saying that not only did we not see this crisis coming, but measures are not in place to prevent the next crisis.

So, with no punishment for these guys now or ever, no financial reform yet in place, new evidence that banks have managed to circumvent leverage ratios by simply reducing debt in the last week prior to quarter close, why believe for one second that things have changed? And why not profit from it? I continue to own Citi stock and calls, and would even recommend a strategy for passive income by purchasing in the money calls as far out as September, where you can effectively purchase Citi for only pennies more than the current price while accumulating 2-3x more shares. I have also purchased BAC Jan 11 $30 calls for .11, and see no reason not to buy April calls on JPM and BAC ahead of earnings this week.

Barron's had also recommended a GE straddle ahead of April 16 earnings with and $18 strike, but I was in and out of the $19 calls this week and would recommend these for better leverage. Thanks to Princeton for logging on, and we would welcome any comments.

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