News Flash: Banks Stocks Could Get Lift

I had a feeling when I was doing the Weekly Wrap over the weekend that the financial stocks were due for a rally. If you haven’t noticed or if you are new to the blog, these stocks run hot and cold and we’ve played a dozen of them by buying both call and put options.

Sunday night, I mentioned the two that I liked most out of the group were Goldman Sachs (GS, $78.26, up $4.06), and JPMorgan (JPM, $25.06, up $0.56). Goldman was up 5% while JP was up 2% but both could be big movers again on Wednesday.

After the closing bell, word got out that the Obama administration’s plan to deal with the “bad bank” solution could come as early as next week. We all knew that behind closed doors the government has been discussing a plan to create a “government bank” that would buy up the toxic assets and bad investments. What we didn’t know is when something could be put in place to put these huge losses the banks have been reporting behind them. The Treasury, Federal Reserve and FDIC will all be involved and this is helping the futures trade higher ahead of Wednesday’s session.

Goldman was up another $3, or 4%, in after-hours trading.

I had mentioned that the options in many of the financials were juiced-up but there may be an opportunity to take a quick gamble on a couple of trades. The Goldman Sachs February 80 (GSBP, $5.00, up $1.45) calls were the most active in the February call chain as over 7,000 contracts traded. They opened on Tuesday at $3.95.

I like the February 85 calls (GSBQ, $2.85, up $0.90) which opened at $2.10 yesterday and finished with nearly a 50% gain.

As for JPMorgan, take a look at the February 26 calls (JSABI, $1.70, down $0.10) for a trade. For you lottery players, the Citigroup (C, $3.55, up $0.22) February 4 calls (CBW, $0.38, down $0.01) traded over 9,000 contracts and could be good for a double if the stock can get to $4.50 by Friday.

Now, I won’t be able to give you exact entry and exit points because things are likely to be wilder than a untamed cheetah when the opening bell rings on Wednesday. You will have to watch how these open, what the demand is, how the market is reacting, and go with your instincts. I will, however, try and give an early morning update on the action or where these stocks could be headed.

Rick Rouse
Rick@OptionsMentoring.com

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