Saturday, August 7, 2010

This Time....

Was no different, as predicted. Would the Euro stress tests be too soft and scenarios far from the tail? Of course! This only brings to question the issue of timing. Paying the time premium before July expiration for HBC and STD August calls was premature, as our profits were tied to this post expiration event. Our cost basis could've been reduced by almost 50% had we waited. The Basel agreements were reached more quickly than expected and this, aside from huge earnings from HBC, actually drove us to gains as much as the tests themselves. No complaints however, as we sold on Monday for a 5+bagger on HBC before the expected fluctuations followed the rest of the week.

STD actually appears to be the best positioned of all banks, but like our own tests, it was the weakest and cheapest of the bunch that rose the most (RBS, BCS, LYG). Our friends on Wall St. have provided us with a new gambling tool that for us, may actually be the best way to leverage our positions. These come in the form of weekly calls. No need to wait a whole 4 weeks anymore, we can now place our bets on one-off events for that day alone while paying less of a time premium. For example, if you think the Fed, fresh off miserable employment numbers, will hint at QE on Tuesday, simply place a directional weekly call on SPY or bank of your choice. You'll probably know by that afternoon if you're right or wrong.


Anonymous said...

Ax... I would assume these options are low-priced with heavy hitting results. Could you send your readers a link?

AX said...

Anon, any option I buy is low priced, typically never more than $1/contract but usually much, much less. HBC contracts were around
.10 at purchase, cratered to .04, and then hit almost .70 on Monday before returning to about .16 on Friday. I have no link or saved screens to show you. Some of our regular readers like Tiger Coach will tell you that they have purchased at better prices than I have several times. The issue with this call was the timing of the event.

The STD calls have been up and down minimally since my reco, ditto MSFT.