Can Anyone Think of a Bigger Pig to Short than JP Morgan?
November 14th, 2007WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
Is it time to start playing the put options lotto on the big banks?
The global financial situation is getting weird to the point that I’m thinking about using micro amounts on capital on very high (fixed) risk, very high reward bets. Put options are the way to play this. Options are a fraction of the cost of holding the actual stock, and provide large leverage. The problem, of course, with options, from a buyer’s perspective, is the finite time period involved. But we really seem to be heading into a strange time for the stock market.
Is a disorderly sell off a month a way, or less?
If you think so, why short the pigs directly? Consider spending a fraction of your speculative capital on buying put options instead.
Back to pig hunting.
Check this out:
Consider this delicious tidbit (quoting the report above):
Five large banks with the greatest notionals represent 97% of the total industry notional amount, 80% of total trading revenues and 88% of industry net current credit exposure.
And those five large banks are:
JP Morgan
Bank of America
Citibank
Wachovia
HSBC
Scroll down and look at the total derivative contracts. What do you notice about JP Morgan’s number? Add the other four up.
* grin *
You might notice, as I did, that JP Morgan is juggling more chainsaws than the other four combined. So, if these five firms represent 88% of the credit exposure in the banking sector, and JP Morgan represents most of that:
Can anyone think of a bigger, more succulent pig to short/buy puts on than JP Morgan?
Considering their exposure to the derivative bomb and the consumer credit card bomb, even though the stock is way down, there’s no rule that says it can’t drop further.
Unfortunately, when you look at the charts of these companies, this revelation is not exactly cutting edge. Insiders/sophisticated investors knew bad trouble was ahead long ago. (Except for poor Prince AlWaleed bin Talal’, who’s down about $4 billion on Citigroup. Buy and hold, Prince, buy and hold, buddy. She’llberight.) All of the big five banks’ stocks have been clobbered, but I don’t see how they’re going to pull their fat out of the fire on this one.
This was actually a dark project going on in the Cryptogon labs, but I’m posting about it because I’m curious: Can any of you come up with any theories on how these banks are going to dodge the bullet on this derivative bomb?
* Hedging. I know. Maybe they hedged it right? Or, right enough to stave off further collapse.
* U.S. Government eats it? I thought of that too. Like Northern Rock.
* Some unthinkable BS black ops finance thing involving “dark pools” etc. saves the day…
* Dead cat bounce that takes on a life of it’s own, suckering buyers in just long enough for my put options to expire worthless…
The other one I like short is HSBC. Just look how far above zero it is… Flying so high in the 80s.
Another option [pun intended] would be to buy puts on XLF.
Have fun and don’t hurt yourself playing short.
