BAC-WT - Bank of America Warrants

[ERICOPOLY]

Alternatively they can take that $300,000 in cash and return it to shareholders. 

 

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

[xazp]

You're right; I should have been more precise. 

 

The $300,000 loan that had defaulted, I'm guessing, had a full risk weight - so it counted towards $300,000 in B3 RWA.  With the 9% B3T1 ratio, that means that $27,000 in capital was being held against it.  So if they decide not to lend it out, by B3 metrics they'd need $27,000 less in capital, which could be returned to shareholders.  IMO this mechanism is part of the reason BAC's B3 ratio is growing so amazingly fast. 

 

Alternatively, they could lend out more than $300,000, because a performing loan has a lower risk weight than a performing loan.  I don't know the numbers, but if a performing loan has half the risk weight of a non-performing loan, they could lend out $600,000 @ 4% off a $300,000 foreclosure and remain neutral on capital. 

 

 

 

 

 

 

Alternatively they can take that $300,000 in cash and return it to shareholders. 

 

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

[ERICOPOLY]

You're right; I should have been more precise. 

 

The $300,000 loan that had defaulted, I'm guessing, had a full risk weight - so it counted towards $300,000 in B3 RWA.  With the 9% B3T1 ratio, that means that $27,000 in capital was being held against it.  So if they decide not to lend it out, by B3 metrics they'd need $27,000 less in capital, which could be returned to shareholders.  IMO this mechanism is part of the reason BAC's B3 ratio is growing so amazingly fast. 

 

Alternatively, they could lend out more than $300,000, because a performing loan has a lower risk weight than a performing loan.  I don't know the numbers, but if a performing loan has half the risk weight of a non-performing loan, they could lend out $600,000 @ 4% off a $300,000 foreclosure and remain neutral on capital. 

 

 

 

 

 

 

Alternatively they can take that $300,000 in cash and return it to shareholders. 

 

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/

 

[wescobrk]

 

Re: BAC-WT - Bank of America Warrants

« Reply #1391 on: Today at 10:41:12 AM »

Quote

"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."

 

 

Thanks for your comments Eric.

 

If you went all in, I'm curious how you would react if we get a big correction in BAC? How would you take advantage or would you leave everything as is?

[ERICOPOLY]

 

Re: BAC-WT - Bank of America Warrants

« Reply #1391 on: Today at 10:41:12 AM »

Quote

"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."

 

 

Thanks for your comments Eric.

 

If you went all in, I'm curious how you would react if we get a big correction in BAC? How would you take advantage or would you leave everything as is?

 

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.

[hyten1]

eric, forgive me i don't quite know what you mean by "my $7 strike 2015 calls would see their embedded put rise in value"

 

you own jan 2015 $7 call, their embedded put rise in value?

 

 

Re: BAC-WT - Bank of America Warrants

« Reply #1391 on: Today at 10:41:12 AM »

Quote

"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."

 

 

Thanks for your comments Eric.

 

If you went all in, I'm curious how you would react if we get a big correction in BAC? How would you take advantage or would you leave everything as is?

 

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.

[berkshiremystery]

Do the A-Warrants have a CUSIP #? I've been trying to locate it but can't seem to find. It's mentioned nowhere in the prospectus either, interestingly enough.

 

I'm seeing: #060505146

Thank you

 

Interactive Brokers has some CUSIP / contract database

 

http://www1.interactivebrokers.ch/contract_info/v3.8/index.php

 

http://www1.interactivebrokers.ch/contract_info/v3.8/index.php?action=Conid%20Info&wlId=IB&conid=73967733&lang=en

[LC]

Do the A-Warrants have a CUSIP #? I've been trying to locate it but can't seem to find. It's mentioned nowhere in the prospectus either, interestingly enough.

 

I'm seeing: #060505146

Thank you

 

Interactive Browrs has some CUSIP / contract database

 

http://www1.interactivebrokers.ch/contract_info/v3.8/index.php

 

http://www1.interactivebrokers.ch/contract_info/v3.8/index.php?action=Conid%20Info&wlId=IB&conid=73967733&lang=en

Thank you kindly...my discount broker doesn't have the BAC warrants listed. Turns out I need to call them and place a trade via phone.

 

/Cannot wait to open an IB account

[ERICOPOLY]

eric, forgive me i don't quite know what you mean by "my $7 strike 2015 calls would see their embedded put rise in value"

 

you own jan 2015 $7 call, their embedded put rise in value?

 

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.

[Uccmal]

eric, forgive me i don't quite know what you mean by "my $7 strike 2015 calls would see their embedded put rise in value"

 

you own jan 2015 $7 call, their embedded put rise in value?

 

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.

 

I see where your coming from.  However, once you pass the 20% threshold you will start to see the difference.  If BAC got down to say 4.95, where it was last December, the Calls will be worth close to zero, while the puts will be worth alot more. 

[Uccmal]

The Bac warrants are trading at a discount  as compared to their peers : wfc, jpm.

 

I am guestimating about $2.00 discount.  The moment BAC announces a dividend increase in the future I would expect a pop of close to that on the warrants.  From here that is an instant 60%, without any significant stock appreciation. 

 

The same thing happened with AIG when Benmocshe started talking dividend. 

[ERICOPOLY]

I see where your coming from.  However, once you pass the 20% threshold you will start to see the difference.  If BAC got down to say 4.95, where it was last December, the Calls will be worth close to zero, while the puts will be worth alot more.

 

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).

[PlanMaestro]

I think Eric is making the Put-Call Parity argument with very short term assumptions since it is from one day to the next (no dividends, no treasuries interests). More about it in Wikipedia for example.

 

Put-Call Parity

http://en.wikipedia.org/wiki/Put%E2%80%93call_parity

 

Call + PV (Strike Price) + Dividends = Stock + Put

 

Now, what is the importance of this parity for him if there is no arbitrage, I have no idea.

 

[yitech]

Valid for European options, assuming no dividends to keep things simple:

Call  = Stock + Put - PV (Strike) = Protective Put - PV(Strike)

 

The two accounts are not the same, but the delta of the two accounts are the same assuming zero interest rate.

[ERICOPOLY]

Now, what is the importance of this parity for him if there is no arbitrage, I have no idea.

 

Follow the thread back to when I brought up the example.

 

It's merely to illustrate the presence of the embedded put.

[ERICOPOLY]

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.

[ERICOPOLY]

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.

 

 

 

[nkp007]

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.

 

A 52 week low can become a 52 week high in 52 weeks. There's a life lesson somewhere in there for all your aspiring investors.

[Alekbaylee]

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?

 

Funny I was thinking the same thing when I read that this morning :

National Bank Lowers Price Target on First National Financial (FFH)

October 21st, 2012 - 1 comment - Filed Under - by Trevor Kearing

Filed Under: Analyst Articles - CA - Stock Market

Equities research analysts at National Bank decreased their price target on shares of First National Financial (TSE: FFH) from $19.00 to $18.00 in a research note issued to investors on Saturday.

 

Shares of First National Financial opened at 372.06 on Friday. First National Financial has a 52 week low of $24.96 and a 52 week high of $26.48. The company has a P/E ratio of 36.73.

 

Fairfax Financial Holdings Limited (Fairfax) is a financial services holding company. The Company, through its subsidiaries, is principally engaged in property and casualty insurance and reinsurance and the associated investment management.

 

Also, in the FFH historical price graph in GoogleFinance they put the dividend at $20 instead of $10.  ::)

 

 

[bobp]

From "The street" computer writers:

 

"Although MSN's debt-to-equity ratio of 0.00 is very low, it is currently higher than that of the industry average."

[mysticdrew]

Eric, curious.. other than maybe rolling over your shorter term options, are you constantly adding to your BAC stake (common, warrants) or are more waiting it out at this point  and just watching things unfold?

[Parsad]

BAC's Merrill Lynch nabs #2 female broker in the U.S. and her 11-member team...along with $2.5B in investment assets.  Apparently, Merrill is going hard after Morgan Stanley's brokers.  Cheers!

 

http://blogs.wsj.com/deals/2012/10/22/bofa-merrill-hires-top-broker-from-morgan-stanley/?mod=yahoo_hs

[ERICOPOLY]

Eric, curious.. other than maybe rolling over your shorter term options, are you constantly adding to your BAC stake (common, warrants) or are more waiting it out at this point  and just watching things unfold?

 

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

[Parsad]

Eric, curious.. other than maybe rolling over your shorter term options, are you constantly adding to your BAC stake (common, warrants) or are more waiting it out at this point  and just watching things unfold?

 

I'm not sure my BAC position could get much more aggressive...

 

Understatement of the year!  ;D  Cheers!

[moore_capital54]

Must say to anyone watching the screen today the outperformance is becoming more noticeable on BAC. A technical break above $9.60 this week sends us to $10 in a jiffy.