Wachovia (WB, $18.32, up $1.20) is the top performer among financial stocks today as we get closer to the Federal Reserve meeting to decide U.S. interest rates. The company’s CEO went on record saying that Wachovia would not need to raise anymore capital and that management changes are done for the time being.

Shares of Wachovia gained 7% at the open and have traded as high as $18.54. On July 30, we picked up some of the January 20 calls (WBAD, $3.30, up $0.40) at $2.25. We are approaching a 50% gain ahead of the Fed meeting so I wouldn’t blame any of you for taking profits ahead of such a volatile event. We moved to the January 20 calls after riding the January 15 calls (WBAC, $6.20, up $0.80) for a 100% profit. They were originally profiled at $1.30 on July 17 and continue to do well.

Citigroup (C, $19.51, up $0.67) is trying to get back over $20 again. The January 20 calls (CAD, $2.50, up $0.22) were profiled at $2.30 and are a work-in-progress. I say that because we are experiencing gains or losses of about 10% on any given day. These same calls were originally profiled at $1.25 and were sold at $2.60 the first time around. The January 22.50 calls (CAA, $1.50, up $0.15) were also mentioned on the 30th at $1.42.

And finally, when I wrote “I still don’t trust Merrill Lynch as a company”, that should have been a warning sign for myself. The first time around with Merrill Lynch (MER, $27.55, up $1.16) we made a 50% profit buying the January 35 calls (MERAG, $1.50, unchanged). They were first profiled at $1.90 and we exited them in the $2.65-$2.75 range. This time around we got in at $2.00 so we are currently looking at a 25% loss. These calls can get back above $2.00 or higher if Merrill makes a push at $30. In any event, set a stop loss at $1.00 just in case.

Overall, all three positions together would be producing a decent profit in less than a week. If we can get a continued rally after the Fed meeting in the financials, the profits will get even better.

Rick Rouse
Rick@OptionsMentoring.com