Oil continues its downward trend -- is this simply people speculating that prices will move lower on a global slowdown, or profit-taking, or people needing to raise money to cover the new rules that are forcing massive short-covering in the financial sector? In the end, does it really matter as long as we're getting the results we want? I'd don't have the vision of Doug Kass, but I wonder if he sees some unintended consequences that we'll face a year or two down the line.
There is an awful lot of call-buying across the financial sector, but I have feeling that much of it covered call-writing as people take advantage of the pumped premiums to collect some incremental income over the next few months. It makes sense, especially as dividends get slashed.
For example, with Bank of America (BAC - commentary - Cramer's Take) Citigroup and especially the lower-tier names such as Wachovia (WB - commentary - Cramer's Take), one can sell August calls that are one strike out of the money, yielding more than 3% over the next four weeks.
For example, with BAC trading around $30 a share, one can sell the August $32.50 call for about 90 cents -- that's a 3% return assuming the stock stands still. With Citigroup trading around $19.75, one can sell the August $22.50 call for 80 cents, a 3.55% return. With Wachovia around $14 a share, one can sell the August $15 call for 80 cents, which translates into a minimum of a 5.8% return if the stock stays above $14 for the next four weeks.
Steven Smith Blog Tale of Two Tapes 7/22/2008 9:05 AM EDT Energy and infastructure continue upward, while everything else continues to slide.
Steven Smith Blog A Day of Rest 7/21/2008 4:48 PM EDT After an extraordinarily news-driven close to last week, today was quiet.
Steven Smith Blog A Better Idea for Short Sellers 7/21/2008 12:23 PM EDT Single Stock Futures could benefit from the current environment
Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback; click here to send him an email.To read more of Steve Smith's options ideas take a free trial to TheStreet.com Options Alerts.
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