BAC-WT - Bank of America Warrants

[StubbleJumper]

Anyone other than me and Eric making a mountain of money this week.  I have started to reduce the Bac high strike options by a few percent. 

 

BAC, AIG, SSW, JPM, WFC, and even FFH a little bit.

 

Mountain of money?  Not sure that I'd describe it that way, but it's been a good start to the year.  I guess that I'm just a little more subdued because the joy of seeing my portfolio rise is being offset by the sorrow of calculating the annual cheque that I will send to Revenue Canada. :P

[Parsad]

Anyone other than me and Eric making a mountain of money this week.  I have started to reduce the Bac high strike options by a few percent. 

 

BAC, AIG, SSW, JPM, WFC, and even FFH a little bit.

 

Yup.  BAC, SD, FFH, LUK, CTL, WFC and on Monday I bought a bunch of April 5, 2013 BAC $12 Calls at 17 cents each...52 cents today...I expect 80-90 cents when the announcements come this week and next.  Cheers!

[hyten1]

parad,

 

apr 13, $12 calls seem so risky? i assume that is just play money, meaning not a good % of your asset?

 

i am curious on what people think and do, one of the reason why eric's return is so insane (it is truely insane) is due to his leverage.

 

i guess i am trying to get a handle on how much leverage vs time frame etc.

 

i try to leverage some of my long ideas starting in 2012 (never done it before) by usually using call options

 

but is that usually it? what else do you people do? i assume people use leaps? how much leverage?

 

EDIT: I know there is no right or wrong answer, i guess just trying to get a feel as what people do.

 

hy

[MYDemaray]

Say it ain't so.  Someone writes a story with a rebuttal to the "billions more" in liabilities thesis: http://www.thestreet.com/story/11863174/1/bank-of-america-investors-grill-cfo-at-dinner.html?puc=yahoo&cm_ven=YAHOO

 

Update: none other than Dan Freed from Reuters who's been covering the other side for a while

[obtuse_investor]

parad,

 

apr 13, $12 calls seem so risky? i assume that is just play money, meaning not a good % of your asset?

 

i am curious on what people think and do, one of the reason why eric's return is so insane (it is truely insane) is due to his leverage.

 

i guess i am trying to get a handle on how much leverage vs time frame etc.

 

i try to leverage some of my long ideas starting in 2012 (never done it before) by usually using call options

 

but is that usually it? what else do you people do? i assume people use leaps? how much leverage?

 

EDIT: I know there is no right or wrong answer, i guess just trying to get a feel as what people do.

 

hy

 

Not all of us leverage with options and LEAPS. As for myself, I only own Warrants, which have some inherent leverage built in; but they are more equity like, mainly due to their expiry date. But I bought them back in 2011... and I intend to just sit on them for another five years.

 

Whenever I have ventured into buying calls or even puts, it has been a stressful situation. Overall I am about even whenever I have speculated with short term derivatives, but it isn't a fun experience and is unnecessarily exciting.

 

Whenever I get attracted to short term "plays" like that, I remind myself of Graham's note in the Intelligent Investor about distinction between a speculator and an investor. I prefer to be the latter.

[fareastwarriors]

forever banking bull, Bove

 

http://www.cnbc.com/id/100532573

...

 

In particular, Bove said that "without a doubt" the stock with the most upside right now is Bank of America.

 

"I'm still of a belief that Bank of America will reach a price of $30 per share. It might take two or three years, but these litigation issues at some point will float away and what will be left is a company with $1 trillion in deposits, which will be earning, at some point, $2.75 per share."

 

...

 

[rranjan]

 

i guess i am trying to get a handle on how much leverage vs time frame etc.

 

i try to leverage some of my long ideas starting in 2012 (never done it before) by usually using call options

 

but is that usually it? what else do you people do? i assume people use leaps? how much leverage?

 

EDIT: I know there is no right or wrong answer, i guess just trying to get a feel as what people do.

 

hy

 

I can't speak for everyone but I will throw my thoughts here. Since leverage cuts both ways, I would say, risk what you fan afford losing and ensure that you get to fight another day. Based on his posts, it seemed that Eric was comfortable with losing most if not all of his portfolios. A while back, I remember few of his posts where he shared her wife's view as well when taking all or nothing kind of bet. His bets were according to his comfort level.

 

I think you should bet an amount which allows you a chance to fight another day. That's what I think. May be right or may be wrong but each person will have different comfort level.  I was comfortable taking 40% position when BAC warrants were in lower 2's in addition to some leaps but I could never put 100% in one position no matter how comfortable I feel about business prospects of a publicly traded companies. May be for very short duration I can go lot higher but not for any extended duration. With BAC warrants, I am comfortable holding close to their expiry period. It will fluctuate a lot but every instinct tells me to hold it till they are close to expiry. Even in an average case, warrants should give satisfactory results.

 

I talked about warrants but same goes for leaps as well. Warrants had lot less risk due to lower leverage as compared to leaps so you can adjust the position size but you get the gist.

 

Added later: In leaps you can have different level of leverage but it allows you to have very high level of leverage. In warrants it was limited.

 

My two cents....

[hyten1]

rranjan thx

[Parsad]

parad,

 

apr 13, $12 calls seem so risky? i assume that is just play money, meaning not a good % of your asset?

 

i am curious on what people think and do, one of the reason why eric's return is so insane (it is truely insane) is due to his leverage.

 

i guess i am trying to get a handle on how much leverage vs time frame etc.

 

i try to leverage some of my long ideas starting in 2012 (never done it before) by usually using call options

 

but is that usually it? what else do you people do? i assume people use leaps? how much leverage?

 

EDIT: I know there is no right or wrong answer, i guess just trying to get a feel as what people do.

 

hy

 

Only 1% of the fund...if the options had dropped in price on Tuesday, I would have bet up to 2%.  I did the risk assessment:

 

1)  I know that BAC will pass the stress test

2)  I know that they will return some amount of capital (I think $7B, market had reduced their expectation to about $3B)

3)  The stock would move closer to tangible book if they passed 1) and passed tangible book if they hit my expectation on 2)

4)  If we lose money, we lose 1%.  If we make money, the odds are very likely to double...with high upside of 400-600% return or 4-6% return on the entire fund.

 

I felt comfortable with the business, the return, the downside risk and short-term nature of the bet.  Cheers! 

[hyten1]

parsad thx

[jay21]

parad,

 

apr 13, $12 calls seem so risky? i assume that is just play money, meaning not a good % of your asset?

 

i am curious on what people think and do, one of the reason why eric's return is so insane (it is truely insane) is due to his leverage.

 

i guess i am trying to get a handle on how much leverage vs time frame etc.

 

i try to leverage some of my long ideas starting in 2012 (never done it before) by usually using call options

 

but is that usually it? what else do you people do? i assume people use leaps? how much leverage?

 

EDIT: I know there is no right or wrong answer, i guess just trying to get a feel as what people do.

 

hy

 

Only 1% of the fund...if the options had dropped in price on Tuesday, I would have bet up to 2%.  I did the risk assessment:

 

1)  I know that BAC will pass the stress test

2)  I know that they will return some amount of capital (I think $7B, market had reduced their expectation to about $3B)

3)  The stock would move closer to tangible book if they passed 1) and passed tangible book if they hit my expectation on 2)

4)  If we lose money, we lose 1%.  If we make money, the odds are very likely to double...with high upside of 400-600% return or 4-6% return on the entire fund.

 

I felt comfortable with the business, the return, the downside risk and short-term nature of the bet.  Cheers!

 

If/when I start using options, it will be in a manner and method consistent with Parsad's (analytical on probabilities and upside and sensible position sizing).  Good analysis, hopefully the results will follow

[finetrader]

I am expecting a .10$/share of GAAP earnings for Q1.

 

and then .2$ for Q2, .3$ for Q3, .4$ for Q4.

 

[onyx1]

 

I think you should bet an amount which allows you a chance to fight another day.

 

 

Yes.  And it this amount varies with age and annual earned income.  If you are young and can bet a years compensation losing it all isn't a big setback.  As much as I'd like to have Eric's returns, I won't ever go all-in on anything as my portfolio represents 25 years of savings and 5 years of investing effort to grow it.  Losing it all would be devastating and unrecoverable.  I don't care how much of a "sure thing" I am dealing with.

 

However, for those who are young and aspire to be rich, this "little to lose" dynamic works very much in your favor!  It's great to see some people on this board taking advantage of it.

 

 

[PlanMaestro]

Say it ain't so.  Someone writes a story with a rebuttal to the "billions more" in liabilities thesis: http://www.thestreet.com/story/11863174/1/bank-of-america-investors-grill-cfo-at-dinner.html?puc=yahoo&cm_ven=YAHOO

 

Update: none other than Dan Freed from Reuters who's been covering the other side for a while

 

Thanks Michael.

 

Further, according to Horowitz, the court must find that Bank of New York Mellon (BK_), which approved the settlement in its role as the trustee for the MBS holders, "did not act appropriately as a fiduciary." Horowitz believes this will be difficult to prove "given the intensity of settlement negotiations and that [bNY Mellon] made an effort to ensure all affected Trusts were included in the settlement, going above and beyond the general 25% of each tranche required from the pooling & servicing agreements.

[txlaw]

parad,

 

apr 13, $12 calls seem so risky? i assume that is just play money, meaning not a good % of your asset?

 

i am curious on what people think and do, one of the reason why eric's return is so insane (it is truely insane) is due to his leverage.

 

i guess i am trying to get a handle on how much leverage vs time frame etc.

 

i try to leverage some of my long ideas starting in 2012 (never done it before) by usually using call options

 

but is that usually it? what else do you people do? i assume people use leaps? how much leverage?

 

EDIT: I know there is no right or wrong answer, i guess just trying to get a feel as what people do.

 

hy

 

Only 1% of the fund...if the options had dropped in price on Tuesday, I would have bet up to 2%.  I did the risk assessment:

 

1)  I know that BAC will pass the stress test

2)  I know that they will return some amount of capital (I think $7B, market had reduced their expectation to about $3B)

3)  The stock would move closer to tangible book if they passed 1) and passed tangible book if they hit my expectation on 2)

4)  If we lose money, we lose 1%.  If we make money, the odds are very likely to double...with high upside of 400-600% return or 4-6% return on the entire fund.

 

I felt comfortable with the business, the return, the downside risk and short-term nature of the bet.  Cheers!

 

Very interesting, Sanjeev.  I did something similar with DELL.

 

Specifically, I took about 40% of my cap gains on DELL and put them into April '13 $13 calls.  Cost basis of $0.94.  I realize that there could be a total wipeout, but I made a calculated risk here after T. Rowe Price expressed their alignment with SEAM.  So far, it has worked out thanks to Carl Icahn.  Very small percentage of my portfolio.

 

Nice to see that you are not a value investor fundamentalist.

[Kraven]

 

I think you should bet an amount which allows you a chance to fight another day.

 

 

Yes.  And it this amount varies with age and annual earned income.  If you are young and can bet a years compensation losing it all isn't a big setback.  As much as I'd like to have Eric's returns, I won't ever go all-in on anything as my portfolio represents 25 years of savings and 5 years of investing effort to grow it.  Losing it all would be devastating and unrecoverable.  I don't care how much of a "sure thing" I am dealing with.

 

However, for those who are young and aspire to be rich, this "little to lose" dynamic works very much in your favor!  It's great to see some people on this board taking advantage of it.

 

This is a great post.  I hope some of the board members pay attention to it and not the (admittedly) gaudy returns that can be achieved.  I'd be lying if I said that I wouldn't love returns like that, but even a tiny chance of losing it all would be as Onyx said devastating and unrecoverable.  When you're single or in the right circumstances you can put it all on red or black, but when you have a family, etc and no way to replace your assets it would be foolhardy.  Sure wish I could do it though! 

[ERICOPOLY]

Did BAC really just rally more than $1 on hopes that the dividend will be raised to 4 or 5 cents?

[compoundinglife]

 

I think you should bet an amount which allows you a chance to fight another day.

 

 

Yes.  And it this amount varies with age and annual earned income.  If you are young and can bet a years compensation losing it all isn't a big setback.  As much as I'd like to have Eric's returns, I won't ever go all-in on anything as my portfolio represents 25 years of savings and 5 years of investing effort to grow it.  Losing it all would be devastating and unrecoverable.  I don't care how much of a "sure thing" I am dealing with.

 

However, for those who are young and aspire to be rich, this "little to lose" dynamic works very much in your favor!  It's great to see some people on this board taking advantage of it.

 

This is a great post.  I hope some of the board members pay attention to it and not the (admittedly) gaudy returns that can be achieved.  I'd be lying if I said that I wouldn't love returns like that, but even a tiny chance of losing it all would be as Onyx said devastating and unrecoverable.  When you're single or in the right circumstances you can put it all on red or black, but when you have a family, etc and no way to replace your assets it would be foolhardy.  Sure wish I could do it though!

 

Agreed! Great post. I think WEB echoed the same feeling when talking about LTCM saying "To make money they didn't have and didn't need they risked what they did have and they did need, and thats foolish." He also went on to say that if you were offered a huge sum of money to put a gun with one bullet in the cylinder you wouldn't do it, even if there were 1000 chambers in the cylinder.

 

If the risk is such that would it would ruin your life then why take it regardless of the odds and upside!

 

[mankap]

stress test results are posted now

 

http://www.federalreserve.gov/newsevents/press/bcreg/DFAST_2013_results_20130307.pdf

[mankap]

BAC common tier1 ratio is at 6.8 under stress .BAC is passing the stress test.

Surprisingly BAC came out better than JPM which is at 6.3 and WFC is 7.0.

[jrallen81]

Looks like Citi's efforts to hold lots of extra capital was recognized as well.

[MYDemaray]

Looks like Citi's efforts to hold lots of extra capital was recognized as well.

 

No joke..that really stood out

[wescobrk]

Is there a way to infer BAC's payout from the results?

[mankap]

Does any body remember what was common tier1 ratio for BAC from last year's stress test

[xazp]

It's a good question. 

 

The unknown part is whether BAC has been coerced into returning a lot less than what is implied by the stress test results. 

 

For example: JPM's results are basically the worst of the banks.  But, they will ask to return all the excess capital and that will amount to over $10Bn in capital returns.

 

BAC's results are better than JPM's and C's are much better.  But analysts currently anticipating them returning much less than JPM.  They believe there is some kind of invisible regulatory force which is telling BAC and C to ask for lower than what they could return according to what's been released today.  Because given today's results, if they asked for the "max" they should be returning something in-line with JPM. 

 

I don't know the answer. 

 

Is there a way to infer BAC's payout from the results?