There is plenty to be nervous about. Bof A, Citi are in serious trouble as well as JP. So the next question out of folks mouths is, "If the banks are in trouble, why are you buying a bank index? Particularly UYG?"
While I am not actually long UYG, I am in essence betting that it will eventually be above 3-4 dollars. If we look at the holdings, the 3 majors that are almost certain to be different in the coming months, they are 15% of the ETF. If they should go to zero ( which they wont since they will be merged sliced diced or other sorted things, but for our example, if they should go to zero, that is a 15% hit on the ETF. At 3 and change, this would mean .45 (cents)
then what? I would expect the ETF to buy sound banks and have the ETF move higher. Now if I were to sell a 3 Feb put, I would collect the same amount as the potential of the ETF to drop. .45 I am only banking (pun intended) on the ETF eventually being above my strike and expiring worthless. If it takes a few months or even a year, I can roll out each month collecting more premium.
Subscribe to:
Post Comments (Atom)
3 comments:
I understand your point of view but I would have to disagree with part of it.
If those 3 or 6 banks are going to 0, panic will take over investors and they will sell everything that has to do with the banking sector.
Therefore, a larger than 15% hit would take place inside that ETF.
The trouble in today's market is that you cannot isolate the bad from the good, meaning that the rest of the seemingly good banks will lose their value as well in the event that those mentioned are going under.
People will always ask: whose next? And they will try to protect themselves by shorting everything in sight.
So the assumption that there will not be any banks left standing or will some and those will be in the ETF.
Good thoughts though huh?
panics are short lived, but if they happen to be around the expiration date will produce some panic in my account.
Your roll over strategy would probably take care of that.
Post a Comment