A week ago, I stuck my neck out when BAC was at $14 and said, BAC will go to $11.... By the end of the week. I based this on fundamentals and nothing else.
It was three trading days late, but it was worth the wait. It went up to $15 and almost shook me out. But I held until yesterday when I covered my short position. But this morning, I can see that fear had truly entered financials so I put in a pre-open order on May 12.5 puts at .75. Even though BAC opened essentially under $12, the order was filled and I enjoyed the rest of the day.
It is not a good idea to play short term options like that. It is more gambling. But even when gambling, playing the odds will pay off more than it will hurt. I took a chance and it paid off.
IS THE BAC FALL OVER?
BAC has fallen about 30% from its recent high. But is the fall over? BAC has a major problem in front of them. They were planning on raising about $7B in capital via a secondary offering. But they blew the timing. They could have easily done this last Friday or even Monday but they put it off. With their stock price now lower, their secondary price will have to be lower which means more shares will have to be offered, thus creating dilution and most likely driving the price even lower.
BAC would now have to price their secondary offering around $9 or lower. The longer they wait, the lower the price. The result will be a fall in the stock price much lower than anticipated.
I look for BAC to see $7.50 before the end of the month. Based on fundamentals, their exposure to credit cards and first tier residential loans, and their need to raise capital via a secondary offering.
The VIX was up today almost 2 points but it is still 2 points from the 20 dma. This has me concerned that this pull back is not for real. I want to see the VIX above the 20 dma before I think it is worth adding more to my short positions. Until then, I will watch and wait.
This could just be a healthy pullback. TA is not telling me that it will go lower than 878 but fundamentals say this market is way overbought and the economy is not in recovery, but instead, at a bottom. Until we really start to see recovery in the way of increased job openings and more new jobs than lost jobs, we are not in recovery.