some thought about Bank stress test and TARP money (also SKF, FAZ discussion)

hanayori

From this article http://www.marketwatch.com/News/Story/Story.aspx?guid={0C9C60F2-14B7-44E7-AE03-F64C09F9BEBD} seems the banks want to keep the TARP money till the so-called stress test is finished, which will be by the end of April (last month it was said to be complete in the beginning of April), so seems it is taking longer. I suspect that the bank CEOs changed their tone to keep the TARP money for a while (instead of returning it sooner as they claimed earlier) is to make sure they can pass the test.

One thing I am not sure is whether the Market-to-Market rule will be changed temporarily, I read that FASB has posted the change for RFC and will do final discussion next week, so I think that is the key to Financial sector performance (also SKF, FAZ!!!) next week.

Goldman's Blankfein also said the firm is "anxious" to get the results of the government's so-called stress test, which is scheduled to be completed by the end of April. He said the firm is already confident about its financial strength, but needs to hear what regulators think. After that, Goldman may be in a position to repay money it got last year from the government's TARP program.


I am holding SKF and selling out of money calls to hedge my position, also holding long term (october 80 put) to hedge. SKF has very high volatility thus higher premiums for nearer month , so that is my strategy.  

For people who hold FAZ and don't want to sell, I am not sure if that is a good strategy, maybe buy some lower strike put to hedge? In case it shot up again, your profit will cover those puts; if it turns out not a large up, then you will have some hedge.

Lite's chart and post suggest a potential SKF break out on the upper side, I would very much want to believe this since I hold lots of SKFs, but there are also other posts in HT saying 老蛇的XLF图 showed XLF may break up too!!! Not sure if SKF as a volatile 2X stock  fits for TA. But SKF does showed support around 87-90 area. In the 10 days, every time it dropped to around 89, it bounced back.

My lesson learned is to buy hedge when I entered to buy the stock instead of buying it later. For example, when I bought SKF at 118, I thought it could easily go up so did not buy any hedge, then it dropped sharply to near 90 and I got scared and tried to buy some hedge, that is very bad trading. I should set stop loss or buy hedge (low strike put) when I entered that trade. I have learned my lesson for this trade, but I did not cut loss right now since I estimate long term the market won't go up in a straight line, it takes time for all the bank plans (buy toxic asset) to work, also SKF has high option premium, so I do plan to hold it for another 6 month and just sell out-of-money calls. (SKF does not decay as bad as FAZ and that's another reason I decide to hold it.)

I am really a beginner, so any comments and suggestions are really welcome.

我是谁

sofa

RespectRisk

Bench.

n748

I personally believe It's risky to hold SKF for long term, even though it's better than FAZ. However, your situation is much better since you are selling calls to reduce your cost base. Of course the risk of doing that is you are also limiting yourself from big profit in case I shoot up really big in the pullback, which I believe it's coming if not already came on Friday.

ffpp

顶

dara

I do not see how your strategy would work.

Because you sell covered calls, your upside is limited, if your covered call strike price is very high, you would not get much premium at all

hanayori

You are right, I should entered hedge when i bought it, so this is just to try to make up some loss. I try to sell $7 per contract with out-of-money strike and that has been achived so far since I sold the call in the beginning of the option month and sold when SKF is at upper range (95+). I am sure no one will follow my example.
For good strategy, see HH's post here:
http://www.hutong9.com/viewthread.php?tid=42520