Assuming this financial mess corrects itself over the next few weeks, I'm going to consider a bull spread on SOV. BTW, SOV traded in a tight (0.05) range today setting up a great base-and-break daytrade. 10:1 reward to risk if you sold at $5.00 with a stop at $3.90...damn, where was I?! Here's what came out on Briefing.com:
"...Co also stated that SOC is well capitalized, according to all regulatory requirements. Co has unused committed liquidity of $12.0 billion from the Federal Home Loan Bank of Pittsburgh and the Federal Reserve. Co has undertaken a methodical process to reduce risk in recent months, including the liquidation of its entire CDO portfolio. Sovereign has only $200 million in debt maturing over the next 15 months at the holding company. Co is fundamentally sound by all financial and operational measures. Co is confident that this team will greatly improve their leadership as they intensify their focus on the fundamentals of their core franchise and conservatively manage their balance sheet."
Bull Spread - I like this set-up because the open interest and volume has shot up on the Oct 5's, thereby pushing up the implied volatility and option price as compared to the Oct 2.5's. Here's the breakdown using 10 contracts as an example:
Oct 2.5 Calls - asking 1.80, bidding 2.05, buy 10 @ 2.00 = $2000
Oct 7.5 Calls - asking 0.25, bidding 0.30, sell 10 @ 0.25 = $250
Max Risk - If stock goes to zero, you lose $1750 ($2.00 - $0.25 = 1.75 x 1000)
Max Gain - If stock trades at 7.50 on expiration, you profit $3250 ($5.00 - 2.00 + 0.25 = 1.35 x 1000)
2:1 for reward/risk...not bad but still a little too safe for me. I'm going to wait for another base-and-break to pick up the Oct 2.5 Calls and then sell the Oct 7.5 Calls when it starts to fade. Maybe I'll be able to pick up $0.50-$1.00 more than the scenario above.
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8 comments:
I see the max gain on that spread as 1350. Normally vertical legs that are itm/atm trade at close to a 1:1 risk reward.
Thanks Steveplace. I had a feeling something was wrong with the math. I corrected the post using Oct 7.5 Calls.
OE, ok,took me awhile, but all set. Bought add'l FNM 2.5 & FRE 3 callers. Sold XOM & SMH-holding GG and completed Purchace of AMR puts (went with 10's). Was thinking about jumping in on NCC, but hesitated....enough in the boat, may be too much and could sink me.Looks like ur bull spread on SOV working well.
D, I picked up a few FNM 2.5's myself. I went with the straight shares on SOV and haven't sold any calls on them yet. C is strong again and may clear 4-month resistance. Still leary of "sell the news" tomorrow.
OE, nice call on C! maybe things will turn out as "hoped" this time around, tomorrow.
I picked up some C Oct 25's near the close.
OE, nice going, again, on picking up add'l C on the close...looks real strong..almost forgot, I still have my WB as well.
Thanks, D. Hope we can get another move higher in the financials over the next couple days.
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