benchmark Posted June 1, 2012 Share Posted June 1, 2012 picked up some commons this morning Link to comment Share on other sites More sharing options...
obtuse_investor Posted June 1, 2012 Share Posted June 1, 2012 Bank of America Corporation at Sanford C. Bernstein & Co. Strategic Decisions Conference Wednesday, May 30, 2012 10:00 a.m. ET ... Europe: -We can control direct effects, need to keep an eye on second and third order effects, e.g. negative growth, negative capital market effects ... I do not understand this sentence. Is it even possible that the mess there will result only in "direct effects"? I take that as: a) management knows that there are second and third order effects b) management realizes that they can do nothing about it and isn't wasting their time and money buying insurance or hedging, which are already too expensive, anyway Link to comment Share on other sites More sharing options...
Uccmal Posted June 1, 2012 Share Posted June 1, 2012 Listen to the call. It is very good. 1 hour of BM answering good, probing quesfions. 1st order - direct exposure to EU debt - very low 2nd and 3rd order - loans to multinationals, interbank loans and trading, some they can hedge for, some they cant. Link to comment Share on other sites More sharing options...
Grenville Posted June 1, 2012 Share Posted June 1, 2012 Listen to the call. It is very good. +1 Link to comment Share on other sites More sharing options...
ERICOPOLY Posted June 1, 2012 Share Posted June 1, 2012 The $5 strike 2014 call is $2.97 "ask" -- breakeven stock price of $7.97 The $4 strike 2014 call is $3.65 "ask" -- breakeven stock price of $7.65. Difference of 32 cents on the breakeven price, but the difference in strikes is only $1. So the market is charging a 32 cent premium for protection of the stock dropping from $5 down to $4? Or alternatively, the extra $1 of leverage costs about 32% to "borrow". Doesn't really make sense, does it? Link to comment Share on other sites More sharing options...
alertmeipp Posted June 2, 2012 Share Posted June 2, 2012 I think the 32 cents is also for more leverage. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted June 2, 2012 Share Posted June 2, 2012 I think the 32 cents is also for more leverage. I know, but the difference between the break even point of the $3 calls and the $4 calls is only 20 cents, or 20% of the additional $1 that you are "borrowing". The "marginal lending rate" jumps from 20% to 32% as you move past $4 strike and head to $5 strike. It's like 60% more expensive for that incremental dollar of leverage! Link to comment Share on other sites More sharing options...
alertmeipp Posted June 2, 2012 Share Posted June 2, 2012 I think the 32 cents is also for more leverage. I know, but the difference between the break even point of the $3 calls and the $4 calls is only 20 cents, or 20% of the additional $1 that you are "borrowing". The "marginal lending rate" jumps from 20% to 32% as you move past $4 strike and head to $5 strike. It's like 60% more expensive for that incremental dollar of leverage! Yes, if u at the face value. But 4 -> 3 is 25% the other way around, 5 -> 4 is 20%, 25%... Link to comment Share on other sites More sharing options...
ERICOPOLY Posted June 2, 2012 Share Posted June 2, 2012 I think the 32 cents is also for more leverage. I know, but the difference between the break even point of the $3 calls and the $4 calls is only 20 cents, or 20% of the additional $1 that you are "borrowing". The "marginal lending rate" jumps from 20% to 32% as you move past $4 strike and head to $5 strike. It's like 60% more expensive for that incremental dollar of leverage! Yes, if u at the face value. But 4 -> 3 is 25% the other way around, 5 -> 4 is 20%, 25%... In plain English, I'm looking at the marginal cost for that extra $1 of added leverage. If held to maturity, the stock has to have appreciated in excess of 32% at expiration before that additional $1 of leverage makes a positive contribution to your returns. What is your calculation trying to measure (in plain English)? I totally don't understand what you are driving at. Link to comment Share on other sites More sharing options...
alertmeipp Posted June 2, 2012 Share Posted June 2, 2012 you were saying the difference between 4 and 5, and 3 and 4 is $1. What I am saying is, yes, it's $1 but the ratio that $1 represents is different in the the two cases. between 3 and 4, 1 buck represents 33% difference between 4 and 5, 1 buck represents 25% difference. Realize it's still not clear, but got to run. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted June 2, 2012 Share Posted June 2, 2012 you were saying the difference between 4 and 5, and 3 and 4 is $1. What I am saying is, yes, it's $1 but the ratio that $1 represents is different in the the two cases. between 3 and 4, 1 buck represents 33% difference between 4 and 5, 1 buck represents 25% difference. Realize it's still not clear, but got to run. Let me introduce the $2 strike option to my argument and see if that makes an impression. It costs 20 cents extra premium to go from $2 strike to $3 strike. So it costs 20% to borrow $1 extra. It costs 20 cents extra premium to go from $3 strike to $4 strike. So it costs 20% to borrow $1 extra. It costs 32 cents extra premium to go from $4 strike to $5 strike. So it costs 32% to borrow $1 extra. Now do you see my point? The market has implied some sort of significance in how it prices the leverage once the strike travels from $4 to $5. The marginal cost of added leverage suddenly jumps by 60% from 20% to 32%. It remains steady at 20% all the way up to the $4 strike, then suddenly BOOM! Link to comment Share on other sites More sharing options...
onyx1 Posted June 2, 2012 Share Posted June 2, 2012 you were saying the difference between 4 and 5, and 3 and 4 is $1. What I am saying is, yes, it's $1 but the ratio that $1 represents is different in the the two cases. between 3 and 4, 1 buck represents 33% difference between 4 and 5, 1 buck represents 25% difference. Realize it's still not clear, but got to run. Let me introduce the $2 strike option to my argument and see if that makes an impression. It costs 20 cents extra premium to go from $2 strike to $3 strike. So it costs 20% to borrow $1 extra. It costs 20 cents extra premium to go from $3 strike to $4 strike. So it costs 20% to borrow $1 extra. It costs 32 cents extra premium to go from $4 strike to $5 strike. So it costs 32% to borrow $1 extra. Now do you see my point? The market has implied some sort of significance in how it prices the leverage once the strike travels from $4 to $5. The marginal cost of added leverage suddenly jumps by 60% from 20% to 32%. It remains steady at 20% all the way up to the $4 strike, then suddenly BOOM! Why bother with either of them? The implied financing rates are high on both. Jan '14 5 strike = .97/5 * 12/19 months = 12.2% Jan '14 4 strike = .65/4 * 12/19 months = 10.3% Link to comment Share on other sites More sharing options...
ERICOPOLY Posted June 2, 2012 Share Posted June 2, 2012 you were saying the difference between 4 and 5, and 3 and 4 is $1. What I am saying is, yes, it's $1 but the ratio that $1 represents is different in the the two cases. between 3 and 4, 1 buck represents 33% difference between 4 and 5, 1 buck represents 25% difference. Realize it's still not clear, but got to run. Let me introduce the $2 strike option to my argument and see if that makes an impression. It costs 20 cents extra premium to go from $2 strike to $3 strike. So it costs 20% to borrow $1 extra. It costs 20 cents extra premium to go from $3 strike to $4 strike. So it costs 20% to borrow $1 extra. It costs 32 cents extra premium to go from $4 strike to $5 strike. So it costs 32% to borrow $1 extra. Now do you see my point? The market has implied some sort of significance in how it prices the leverage once the strike travels from $4 to $5. The marginal cost of added leverage suddenly jumps by 60% from 20% to 32%. It remains steady at 20% all the way up to the $4 strike, then suddenly BOOM! Why bother with either of them? The implied financing rates are high on both. Jan '14 5 strike = .97/5 * 12/19 months = 12.2% Jan '14 4 strike = .65/4 * 12/19 months = 10.3% Implied financing rates rise during times of high volatility, high volatility tends to come when people are scared and thus stock prices are low, and when stock prices are low it is precisely the time when it's best to invest. Financing rates could be: 5% when a stock is priced at 10x earnings (during times of low fear/volatility) 10% when a stock is priced at 5x earnings (during times of elevated fear/volatility) Now, if the fear lifts and the stock goes back to 10x earnings, then you've got a 100% capital gain -- if the stock merely climbs with earnings, at least your 20% earnings yield is vastly larger than the 10% financing rate -- you have a 10% spread, instead of the paltry 5% spread that you earn on your 10x earnings stock financed at 5%. Anyhow, that's why I'm okay with paying up a bit for the leverage when a stock is compressed in value. It's just that I don't understand why the leverage for that marginal $1 gets so much more expensive between $4 and $5 strikes. Link to comment Share on other sites More sharing options...
twacowfca Posted June 2, 2012 Share Posted June 2, 2012 you were saying the difference between 4 and 5, and 3 and 4 is $1. What I am saying is, yes, it's $1 but the ratio that $1 represents is different in the the two cases. between 3 and 4, 1 buck represents 33% difference between 4 and 5, 1 buck represents 25% difference. Realize it's still not clear, but got to run. Let me introduce the $2 strike option to my argument and see if that makes an impression. It costs 20 cents extra premium to go from $2 strike to $3 strike. So it costs 20% to borrow $1 extra. It costs 20 cents extra premium to go from $3 strike to $4 strike. So it costs 20% to borrow $1 extra. It costs 32 cents extra premium to go from $4 strike to $5 strike. So it costs 32% to borrow $1 extra. Now do you see my point? The market has implied some sort of significance in how it prices the leverage once the strike travels from $4 to $5. The marginal cost of added leverage suddenly jumps by 60% from 20% to 32%. It remains steady at 20% all the way up to the $4 strike, then suddenly BOOM! Why bother with either of them? The implied financing rates are high on both. Jan '14 5 strike = .97/5 * 12/19 months = 12.2% Jan '14 4 strike = .65/4 * 12/19 months = 10.3% Implied financing rates rise during times of high volatility, high volatility tends to come when people are scared and thus stock prices are low, and when stock prices are low it is precisely the time when it's best to invest. Financing rates could be: 5% when a stock is priced at 10x earnings (during times of low fear/volatility) 10% when a stock is priced at 5x earnings (during times of elevated fear/volatility) Now, if the fear lifts and the stock goes back to 10x earnings, then you've got a 100% capital gain -- if the stock merely climbs with earnings, at least your 20% earnings yield is vastly larger than the 10% financing rate -- you have a 10% spread, instead of the paltry 5% spread that you earn on your 10x earnings stock financed at 5%. Anyhow, that's why I'm okay with paying up a bit for the leverage when a stock is compressed in value. It's just that I don't understand why the leverage for that marginal $1 gets so much more expensive between $4 and $5 strikes. It often has to do with the area under the curve calculated from a normal distribution over time in option pricing models. These models greatly underestimate the probability of price movement into the tails of the distribution which is actually far from normal. Thus, an option with a strike price that is relatively far out into the tail may be more influenced by an underestimation of the probability of the price actually moving that much than an option with a strike price that is closer to the market price. Link to comment Share on other sites More sharing options...
biaggio Posted June 9, 2012 Share Posted June 9, 2012 http://online.wsj.com/article/SB10001424052702303296604577454284259305826.html "Big U.S. Banks Brace for Downgrades Expected Moody's Actions Already Having Ripple Effects; Review of Five of Six Largest U.S. Firms" I understand there are issues that folks are worried about, but is it worse than last summer? I had the impression that environment was less risk especially for the banks since last summer? If it is true that banks borrowing cost increase will they just pass along the added costs to their customers? Will the customers be able to pay? Can the financial system take it? Or is this some sort of contrarian indicator ie rating agencies have not been exactly stellar. Will this cause a buying opportunity? I may not be looking at it properly, appreciate anyone's comments on this. Link to comment Share on other sites More sharing options...
twacowfca Posted June 9, 2012 Share Posted June 9, 2012 http://online.wsj.com/article/SB10001424052702303296604577454284259305826.html "Big U.S. Banks Brace for Downgrades Expected Moody's Actions Already Having Ripple Effects; Review of Five of Six Largest U.S. Firms" I understand there are issues that folks are worried about, but is it worse than last summer? I had the impression that environment was less risk especially for the banks since last summer? If it is true that banks borrowing cost increase will they just pass along the added costs to their customers? Will the customers be able to pay? Can the financial system take it? Or is this some sort of contrarian indicator ie rating agencies have not been exactly stellar. Will this cause a buying opportunity? I may not be looking at it properly, appreciate anyone's comments on this. The problem is that the US and the world is going through a decade or more long credit contraction. It's very much like the climate in the 1930's except that the severity of the contraction has been moderated by easy money, especially from the US Federal Reserve. Unfortunately, this hasn't reduced total debt levels. It has merely replaced one type of debt with another. Now, there is no more room for significant increases in net interest rate margins with risk free rates below zero in real terms. The only realistic prospect going forward is greatly increased taxes or stagflation if not outright inflation. This will lead to PE ratios that continue to compress and continued declines in asset classes supported by easy credit. This will happen especially quickly if taxes and spending cuts take effect as scheduled in January, 2013. Link to comment Share on other sites More sharing options...
bmichaud Posted June 9, 2012 Share Posted June 9, 2012 This downgrade is more than old news and more than priced into the big bank stocks. People with connections new this was coming for months...everyone else had to take the pain for the last two months. Unfortunately that's how the market works - ruthlessly efficient due to the insatiable desire for large investors to obtain an information edge. All that said, I wouldn't worry one bit. Plus BAC is working on paying down high cost debt not taking more on... Link to comment Share on other sites More sharing options...
Uccmal Posted June 9, 2012 Share Posted June 9, 2012 Given that everyone else is or will be downgraded this is rather meaningless. Its like the reverse of everyone at the parade standing on tip toes. Instead they are sitting in chairs. It really makes the rating agencies look like completely useless idiots, which they are. FFH always did their counterparty credit in house, as does Berk. It is likely that big funds will do the same and dispatch the rating agencies altogether. My cost of debt ranges from 2.25 to 3.9 % pre tax. I can find plenty of dividend paying stocks that will more than exceed that level on the dividend alone. Link to comment Share on other sites More sharing options...
goldfinger Posted June 13, 2012 Share Posted June 13, 2012 http://www.reuters.com/article/2012/06/12/us-krawcheck-interview-idUSBRE85B0KT20120612 Krawcheck, European exposure and complexity of big banks. Does anyone have a good understanding of BAC's money market funds exposure to Europe? Link to comment Share on other sites More sharing options...
ERICOPOLY Posted June 14, 2012 Share Posted June 14, 2012 It looks like a director, Charles Gifford, purchased 526,000 shares of BAC yesterday. Link to comment Share on other sites More sharing options...
hyten1 Posted June 14, 2012 Share Posted June 14, 2012 folks who owns shares in BAC (i am guity) are anyone writing puts at or below strike of $5 to get the premium jan 2014 puts? Link to comment Share on other sites More sharing options...
tombgrt Posted June 15, 2012 Share Posted June 15, 2012 Has anyone seen the moves in BAC A warrants compared to common and even B's? Barely up 10% from it's low while the common is up 16%. Interesting point to switch common to A warrants? Link to comment Share on other sites More sharing options...
fareastwarriors Posted June 18, 2012 Share Posted June 18, 2012 BAC in talks to sell international wealth management unit to Julius Baer for ~$1.5 - 2 billion. http://www.cnbc.com/id/47861131 Link to comment Share on other sites More sharing options...
dcollon Posted June 19, 2012 Share Posted June 19, 2012 FHFA Seeks to Limit Buybacks Afflicting BofA to PNC: Mortgages http://www.bloomberg.com/news/2012-06-19/fhfa-seeks-to-limit-buybacks-afflicting-bofa-to-pnc-mortgages.html Link to comment Share on other sites More sharing options...
twacowfca Posted June 19, 2012 Share Posted June 19, 2012 Has anyone seen the moves in BAC A warrants compared to common and even B's? Barely up 10% from it's low while the common is up 16%. Interesting point to switch common to A warrants? The BAC warrants are bipolar in their plusses and minuses. It's great that they are long dated. Value will out if BAC does well long term. On the other hand, they have been very pricey as measured by extremely high implied volatility. They will attrit in value in a sideways market for the stock as implied vol reverts to the market mean. Link to comment Share on other sites More sharing options...
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