The Financial stocks continued their rally in the morning session on Monday but faded by the time the closing bell sounded. Some of the positions went on to double in price and that is really when they should have been sold, regardless of a stop. Sometimes you have to work your trades a little harder but for those of you who don’t have access to the market during business hours, stops are a beautiful thing.

Citigroup (C, $19.69, up $0.34) hit a high of $20.40 within the first hour of trading and the January 20 calls (CAD, $2.30, down $0.05) got to $2.60 before closing lower. They were profiled at $1.25 so stops should have been raised along the way. If you didn’t get out at higher prices then the $1.90 stop should still be in place.

Goldman Sachs (GS, $180.78, down $2.06) made it to $184 and change before fading. The January 260 calls (GPYAC, $1.05, down $0.20) opened at $1.18 and were automatically stopped out. The trade netted a 15% return, not bad for a few days of work.

Merrill Lynch (MER, $30.58, down $0.33) looked strong out of the gate but fell below $30 by the time the market was winding down. The January 35 calls (MERAG, $2.48, down $0.37) opened at $2.69, which fell between the two stop targets of $2.65-$2.75, made a run to $3.35, and hit both targets on the way back down. These calls were profiled at $1.90.

Wachovia (WB, $13.18, up $0.21) opened higher and was really strong but suffered the same fate as the others after hitting $14.66. The January 15 calls (WBAC, $2.15, up $0.22) still managed to close slightly higher but traded to a high of $2.90. They were profiled at $1.30 and $2.60 was the 100% exit point, especially with the company reporting earnings this morning before the opening bell. Wall Street is expecting a loss of $0.78 per share.

Rick Rouse
Rick@OptionsMentoring.com