European Bank Recapitalization

BofA Sued Over Alleged Failure To Disclose Potential $10 Billion AIG Loss

DOHA Bank CEO on Moody’s Downgrading U.S. Banks

BAC, C, & MS Lead Banking Stocks Lower

August 5th Timescast

http://seaofopportunity.blogspot.com/

Bloomberg TV's Cali Carlin on Bank of America demolishing foreclosed homes

Banks Relatively Strong, V Reports Earnings Today After Bell

T3 "Banks Show Relative Strength"

Banking Stocks Get Attention Prior To JPM & C Earnings

Scott Redler of T3 Live shares his view on banks prior to earnings. 

BofA to take $13 billion more in charges: Bernstein

this originally appeard here.  Maybe this is why all those puts were bot yesterday... 

Bank of America will take another $13 billion in charges related to pending settlement with private label mortgage-backed securities investors, Sanford C Bernstein said.

Earnings Plays

BMO Capital came out with their weekly Earnings Volatility Screen today.  Here are some highlights:

• This week features earnings reports from large cap names including: HBC, BUD, RY, ABV, TD, CNQ, BMO, COST, GGB, ACH, VE, HNZ, SPLS, GGP, KR, SLW, SQM, MTL, MRVL, EIX, AZO, LINTA, JOYG, AES, RRC

• The options market is predicting an especially volatile quarter (>7% move) for: MED, NCT, CHTP, CLDX, WNR, CQB, JOE, CSR, SHE, SINA, HOV, BPI, SONS, PDLI, SOL, VIT, PAY, SIGM, ANW, CISG, CRI, EGLE, GMO, BIG, ISIS, TNDM, OSTK, PSS, FL, BID, FIG, LYV, TIVO, EPR, DPZ

• Stocks with the highest level of analyst estimate dispersion (as measured by standard deviation of EPS estimates) include: DEPO, LCAPA, IOC, CQB, MBI, ANV, GGP, GMXR, CLDX, EGLE, RRI, DGI, FSYS, SONS, EXM, GMO, VISN, BYD, LYV, EVEP

• Stocks reporting earnings that are farthest below their 20 day moving average (in % terms) include: SLZP, CHTP, NKTR, MED, ANW, AIB, MTL, MITI, SINA, HOV, BYD, VIT, OSTK, SPLS

• Stocks reporting earnings that are farthest above their 20 day moving average (in % terms) include: HERO, SLW, WTI, NCT, KOG, GMXR, BRY, RRC, CDE, BID, CNQ, CIE, BIG, SSRI, AFAM, DGI, WNR, JAZZ, CLDX, NGD, ANV, PSS, BPZ, DVR, UHS

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

Trade: XLF May $15/$19 long strangle

The Trade

A trader bought 98,889 May $15 puts at $0.19 and bought 91,080 May $19 calls at $0.13 for a debit of $0.32 or $3,062,931. The spread is long delta, and therefore, has a slight bullish bias.

Risk/Reward

As you can see from the risk/reward graph above, the long strangle has limited risk and unlimited profit potential. The max risk for the strangle is the debit. The lower and upper break even underlying price levels are $14.69 and $19.34. Knowing the characteristics of a long strangle, a large move in the underlying helps, an increase in volatility helps, and the passage of time hurts. Long strangles are very risky because in order to be profitable, they need a large move in the underlying.

The lines shown in the chart above are the lower and upper break even underlying prices. At May expiration, if the underlying is in the range shown above, the spread will be profitable. The 52-week range for XLF is a low of 13.29 and a high of 17.15.

The XLF seeks to provide investment results that correspond to the price and yield performance of the Financial Select Sector of the S&P 500 Index. The Index includes companies from the financial services, insurance, commercial banks, real estate investment trusts, consumer finance, and real estate management and development.

XLF traded 377,404 contracts today compared to average daily volume of 271,410. The top ten XLF components include JPM, WFC, BAC, GS, MS, BK, USB, AXP, MET, TRV.

*Hat tip to MEB Options for pointing this out to us!

WFC trades 2X its daily average

Wells Fargo (WFC) traded 129,121 options today, 94,688 calls and 34,473 puts vs a daily average of 65,483 options, 37,088 calls and 28,395 puts.  Traders added 844k deltas in the calls and -168k deltas in the puts.

The print that caught my eye was a buyer of 10,000+ in the money March 32 calls this morning.  After these prints hit the tape the stock never looked back.  

There was also a diagonal short calendar spread where a trader sold 2500 of the March 35 calls @ $0.64 and bought 2500 of the Feb 34 calls @ $0.60.  This trade is profitable above $34.17 tomorrow and above $34.73 on expiration day.   This is a professional trade to be long deltas, long gamma, and short vol, for a credit of $0.04.  Here is the risk/reward for tomorrow:

As you can see in the chart below WFC is testing its highs from April of 2010.  This is very interesting when you compare it to the other big banks.  JPM, GS, C, MS, AIG, BAC, USB, PNC and of course XLF are all below their 2010 highs.