ERICOPOLY

You can always get more aggressive. Sell everything and put 100% into Nov 2012 $18 calls. The ask is just 2 cents right now, I bet you could get some for a penny. I'm probably about 2.6x levered (notional value) at $10 stock price (this assumes warrants at expiry convert to 1.2 shares with $10 strike price). Mostly I can put it in cruise control after this stock works out -- this is orbit-gathering velocity. My taxable account is all common+ 'A'warrants (and a few 2015 $10 calls), and my Roth IRA is a mix of $7,$10, and 'A' warrants.

That's why I boosted my stake after Wednesday's report. I assume rational people will do the same.

I'm not sure my BAC position could get much more aggressive. I seem to like the class A warrants a lot.

It looks like "The Street" has a bug in it's auto-generating headline software. Perhaps this confirms that there isn't a human writing their stories? Bank Of America Stock Hits New 52-Week Low http://www.thestreet.com/story/11743682/1/bank-of-america-stock-hits-new-52-week-low-bac.html?puc=yahoo&cm_ven=YAHOO By TheStreet Wire 10/22/12 - 10:23 AM EDT NEW YORK (TheStreet) -- Bank of America Corporation (NYSE:BAC) hit a new 52-week low Monday as it is currently trading at $9.49, below its previous 52-week low of $18.24 with 19 million shares traded as of 10 a.m. ET. Average volume has been 133.1 million shares over the past 30 days. Bank of America has a market cap of $102.06 billion and is part of the financial sector and banking industry. Shares are up 69.8% year to date as of the close of trading on Friday.

I still can't get over the fact that their B3 ratio went up by 100 bps in just one quarter. Bonus: the Q3 numbers are what the Fed uses for the stress test.

Follow the thread back to when I brought up the example. It's merely to illustrate the presence of the embedded put.

The two account values will be worth the same. My example was simply to illustrated that a call is merely a cash efficeint common position paired with a put. I chose a short time period to eliminate the noise of a dividend from the discussion (as there is no dividend from the call).

Take two marginable accounts of equal value, both of them fully in cash to begin with. There is exactly enough cash in each account to purchase 1,000 shares of BAC. Account A: Purchase 1,000 shares of BAC and also purchase 10 contracts of $7 strike puts, expiring 2015. Account B: Purchase 10 contracts $7 strike calls, expiring 2015. Scenario: Next week the stock goes into a nosedive, falling 20%. Notice how the two accounts fall at the same pace? Their value is the same, no matter how far the stock crashes. Therefore, I reason that Account B must have an embedded put in those calls. Now, the person managing Account A might just sell the puts for a gain. The person managing account B might sell the calls purchase shares instead, or he might instead replace them with calls at a lower strike where the embedded put is less costly.

Depends on what happens, but my $7 strike 2015 calls would see their embedded put rise in value. So there might be something to be done with that.

Well, the $300,000 is probably funded by deposits. But they can use it to retire LT debt instead of lending it out. Well then, I have some reading to do in order to get prepared for my new mode of transit http://www.netjets.com/Life-as-an-owner/

Well, the $300,000 is probably funded by deposits. But they can use it to retire LT debt instead of lending it out.

Wow, so you are 100% on BAC? did you buy common only or leaps + warrants, if you don't mind sharing? common+in.the.money.leaps give me 100% notional exposure. "A" warrants and $10 strike 2014&2015 calls give me the leverage

I actually sold everything else on Wed/Thu this week and increased my BAC. It's like a fish in a barrel, with the barrel drained.

At the beginning of 2011 they were bringing in $12.5b net interest income. Now it's only $10.5b. And the beginning of 2011 was hardly a great time for the NIM. Has anyone computed the size of the interest income hole we're currently experiencing relative to a "normalized" interest environment with a healthy forward curve? I reallize this environment could last a long time, but it's something to look forward to. What if on top of the $20b of expense savings we also get $10b+ on the revenue side? $30+b?

They are separate. They are already part way through NewBAC Phase I and I think were already realizing $1b in annualized cost savings at end of Q2. They also stated that Phase I of newBAC will be completely in place by end of Q3 FY13 (that's $4b remaining to be realized). They also save another $1b in interest expenses on every $30b of LT debt that matures and is replaced with deposit funding. So they should be able to pick up another $1b in savings there over the next year. So $4b + $10b + $1b == $15b in annualized expenses eliminated by FYE 13. Then perhaps there are some substantial legal expenses to be saved as well. Of course this doesn't even include the $3b of NewBac Phase 2 cost savings to be delivered by mid-2015. And if by then they've shaved yet another $30b from the LT debt picture, then we're at $20b in annual expense savings counting the $1b you estimated for legal.

They may have a TBV north of $27 per share by 2019 if they merely retain all earnings and sit on them (no payouts).

The #.of.share.conversion adjustments merely compensate you for the otherwise lost potential of reinvesting your dividend in the stock. It's a synthetic DRIP plan embedded in the warrant. This is also why it matters not to the warrant holder if they pay dividends or buy back shares -- other than perhaps taxation on the dividend related adjustments.

The original poster's scenario described a cumulative adjustment of 1.2x share conversion and with strike down to $10.

You are putting something together well into words that I have been sensing as well. I am quaking with greed, which is odd because I had the same feeling last year and we're quite a ways into this already.

Another way to see the value of the warrants is that the $10 strike 2015 call options cost about 50 cents more for the 2015 maturity vs the 2014 maturity. So, an implied 50 cent time value per annum. Add another $2 to the price of the call to account for time values from Jan 2015 through Jan 2019. That means a 2019 $10 strike call should cost about $3.80. You can get the 2013 warrant for a bit less than that, with the $13.30 strike. Given the dividend protection of the warrants, they do look competitively priced vs the options. However if the stock rockets up quickly, the most leverage will be had on the lowest price paid per option. In the case of $18 stock by next Christmas, for example, I'd expect the 2014s to do better than the 2015s, and the 2015s to do better than the warrants. But the 2019 warrants come with the least maturity risk -- what if economy flares up or whatever in the shorter term.... there's more time to work our way through the fog and making money in the end. So the "fog" has lifted a bit regarding the bank itself, regarding Europe, etc... and the warrants may have suffered some loss of premium for that.

Let's say there are 70 cents of dividends missed by Jan 2015 if you hold the $10 strike calls. So the 2015 $10 strike call option really costs you 1.85+.70 = $2.55 per share. I think somebody a while back used an optimistic yet achievable assumption to conclude the class A warrant could get down to a $10 strike by 2019 and with a per-share conversion adjustment of 1.2x. Summary:, CALL OPTION: $2.45 WARRANT: effectively a $10 strike 2019 call option priced at $3.03 So, for next 4 years you would effectively be "borrowing" $10 per share for a total additional cost of 58 cents. That's like 1.5% annualized interest rate for 4 years -- interest payable upfront. Now, this depends entirely on how good the dividend payouts turn out to be... but it seems like a 30 cent dividend for 2013 seems entirely doable, then 40 cents in 2014, 50 cents in 2015, 60 cents per year after that. It gets me down to about $10.50 per share on the warrant by 2019 -- I'm not sure if that's 1.2x conversion though. Anyways, the warrants are starting to be attractive for sure.

From the Q&A -- LAS will largely come down to normalized quarterly expense level by FYE 13: emphasis added: Brennan Hawken - UBS: Just to make sure I understood, Brian, I think you had said that, as far as the trajectory of the decline in expenses overall for the – looking at the entire thing at LAS and taking a step back, moderate improvements in 2013, but the big lever there is 2014, is that right or am I reading too much into that? Brian T. Moynihan - CEO: I think I was saying that, you'll get the improvements sort of on a quarterly basis all through '13, and in '14, you have the run rate of all that accumulated for you in year-over-year comparisons, but it's going to come all during '13, so it's not moderate.

Finally! I take this as a statement that Legacy Asset Servicing is beginning it's steep descent in Q4. On Slide 20, noninterest expense, I'd like to make a couple of comments here; noninterest expense of $17.5 billion was down slightly from the third quarter of last year and up relative to the second quarter of this year. If we were to back out the increase in litigation expense that we incurred during the quarter, noninterest expense actually declined from Q2 to Q3. If we look at the components of that, we saw improvement in personnel costs and other cost savings realized from new BAC initiatives and that was partially offset by higher cost of mortgage servicing and other mortgage related matters, which as I mentioned previously we'd expect to see come down in the fourth quarter relative to third.

Whalen or Dick Bove: Which one is least reliable for pertinent banking industry analysis? $0 is closer to the current stock price than $65. So I'm going with Bove on that one.

Translation: We are in settlement talks with the GSEs and we're getting close to a number that will be within a range of no more than $1b above what we've already reserved for. From the transcript -- emphasis on the second paragraph. Our reserve for reps and warrants at the end of the quarter increased slightly to $16.3 billion. In the second quarter we provided a range of possible loss over and above existing reserve levels of up to $5 billion which only apply to non-GSE loans. At the time, a range was not provided for GSE activity as we were unable to estimate such a range. In the third quarter, as a result of ongoing dialogue and discussion with the GSEs we have obtained additional information from which we are now able to determine a reasonable estimate of a range of possible loss in excess of our recorded reps and warrant liability for the GSEs. We currently estimate that the range of possible loss for both, the GSEs and the non-GSEs for rep and warrant exposures, could be up to $6 billion. Over accruals at September 30 and compared to the up to $5 billion over accruals at June 30 which once again were only for non-GSE reps and warrant exposures.