Hello $30’s, goodbye $40’s. That is the story with HSBC Holdings (HBC, $39.00, down $3.19) which is down another 6% today along with many other financial stocks. The Dow managed to start off in positive territory but is currently down 152 points to 8047. The Dow briefly dipped below 8000 for the first time since November 21 and the bulls are having a heck of a time keeping it there.
There was more negative news concerning HSBC (and UBS, $11.92, down $0.59) which are now believed to be liable for over $3 billion of losses from the Bernie Madoff scandal. Bank of America (BAC, $8.12, down $2.08) and Citigroup (C, $3/75, down $0.78) are also taking a beating and the fear on the Street is that the same problems hitting those two big banks will soon spread to the entire industry. Really? (!).
It looks as though the sector is going through another wave of bad news and nobody wants to have anything to do with financial stocks right now. Excpet us because we are short the sector.
Here’s an updated look at our HSBC options.
February 45 puts (HBCNI, $7.50, up $2.35). These puts were profiled Tuesday and could have been bought for under $3. We now have a profit of over 150% and you can set stops at $6.50.
The March 45 puts (HBCOI, $9.25, up $2.25) are up nearly 100% from an entry price of $4.75 and stops should be set at $8. The March 40 puts (HBCOH, $6.25, up $1.75) are up 125% from an entry price of $2.75 while the March 35 puts (HBCOG, $4.00, up $1.25) are up 135% from an entry price of $1.70. Wow. Set stops at $5 for the 40 puts and $3 for the 35 put options.
The March 25 puts (HBCOE, $1.60, up $0.50) continue to see huge volume as 26,000 contracts have traded so far. These puts were at $1 on Tuesday.
I also mentioned the Citigroup February 5 puts (CNP, $2.00, up $0.90) before the market opened this morning. I said if Citigroup does trade back down to $3 over the next month, the February 5 puts would double from current prices. The options opened at yesterday’s closing price and are up 85% for the day.
If you had a quick trigger finger this morning, congrats! Citigroup opened at $4.64 and has traded as low as $3.36. There is huge buying in the February 4 puts (CNW, $1.26, up $0.68) and February 3 puts (CNV, $0.66, up $0.39) as over 25,000 contracts have traded at each of those strike prices.
Those are mad profits for Citigroup and I would close the February 5 trade even if it is only a one day trade. Although Citigroup looks like it will be setting new 52-week lows, we still have the HSBC trades and a few others to keep us busy.
Rick Rouse
Rick@OptionsMentoring.com
