Monday, April 13, 2009

Let's revisit Citigroup's financial put recomendation

Let's look at Citigroup's call on March 31.

March 31 (Bloomberg) -- Investors should buy put options on financial companies because derivatives-market trading suggests the industry will retreat after a 43 percent surge since March 6, Citigroup Inc. said.

“Despite the rally, credit and option markets are pricing in increased downside risk,” New York-based Citigroup strategist Alvin Wang wrote in a note sent to clients today.

He recommended puts giving the right to sell the Financial Select Sector SPDR Fund, an exchange-traded fund that tracks a basket of bank stocks, for $8 before May 15. The XLF, as the ETF is known, added 5.5 percent to $8.81 in New York, bringing its gain since March 6 to 43 percent. The May $8 puts fell 25 percent to 70 cents today.

What happened?

The XLF moved another 20% into Citigroup's face!

But Citigroup sure dressed up this incompetent call with a bunch a fancy talk and scientific reasons didn't they!

Since Citi was so assurred that the option and credit markets were based on truth, they used that in their predictive formulas!

That's Citigroup's definition of truth.

A speculative bet in options!

Now let's compare the highly paid bankers at Citigroup with this free blog, with a simple Buy recomendation on BAC! (But why would Wall Street say buy? Their idea of investing is to lend you stock to short, against a preferred that will convert, that the basis will blow up in your face, so they can make you sweat why they rake in the fees!) So you can use their derivative pricing on options to lose money, or you can use options to actually make you money!

Tuesday, March 10, 2009

Buy Bank of America

Buffett said this Monday morning on CNBC about banking:

The spreads have never been wider. This is a great time to be in banking, you know, if you just get past the past and they are getting past the past.

Wall Street doesn't buy into it. Wall Street is wrong. Look at BofA's net interest income the last three years:

12/2008 13,106
09/2008 11,642
06/2008 10,621
03/2008 9,991
12/2007 9,164
09/2007 8,615
06/2007 8,386
03/2007 8,268
12/2006 8,599
09/2006 8,586
06/2006 8,630
03/2006 8,776

BAC is trading at $4.79. Does that price reflect the widening spreads that Buffett spoke about?

Look at the calls on BAC. They are way too cheap.
The May 5's are only $1.31, and the April 6's are only .59. You have a double and a triple in these numbers within the week. (I'm not advertising the March calls, because I own them.)

For once, Bank of America's advertising is correct.

It's the Bank of Opportunity!

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