Bolling: After Lehman Call, Bet on GS, JPM

Always split aces and eights when playing blackjack.

You always split aces because you are getting two hands that theoretically can hit 21 on the next card. You split them into two strong hands, and therefore, you get more money on the table in a strong position. Besides, leaving two aces gives you a two or twelve, neither of which is a good start to a hand. If given the chance, wouldn't you double your bet knowing that your first card was going to be an ace? Sure you would and should.

Now for the eights. You always split eights for a couple of reasons. First of all, sitting with a sixteen against any card the dealer is showing is bad. It gets worse if the dealer has a 9, 10, 11 showing. You will lose about $53 for every hundred you bet by playing a hand of 16. When you split 16 into two hands of eight, you decrease that value of the combined loss to around $43 per hundred dollars bet, even though you put more money on the table. Where splitting the aces is an attempt to win more, splitting eights is an attempt to lose less. It is actually a defensive bet. If you plan to play blackjack, play by "the book," or the way you have the best odds of walking away a winner.

By the time this column is published, Lehman ( LEH) will have reported its quarterly numbers. We are all expecting that massive $2.8 billion loss. They were kind enough to surprise us with that last week instead of surprising us with it Monday. Let's hope Mr. Fuld and company have no more tricks up those very long, loose sleeves.

Either way, if the Lehman earnings report is good or bad, I think there is a trade. I have been watching Goldman Sachs ( GS) and JPMorgan ( JPM) very closely. With a ton of bad news flooding the financials, seemingly daily, Goldman has held up fairly well, and JPMorgan has been stellar compared to the rest of the brokers and i-banks.

Year to date, Goldman is down about 14% and JPMorgan only about 9%. Meanwhile, Lehman is off 60%, Merrill Lynch ( MER) is down 28% and Morgan Stanley ( MS) down 23%. After Lehman's conference call, which is scheduled for 10:00 am., I will look to buy Goldman and JPMorgan as soon as my restrictions permit. I may trade through the options market, looking for an overpriced put to sell.

One of two things is likely to come out of this release, and we should play the hand we're dealt. In scenario No. 1, Lehman may say that things were not as horrendous as recently thought, and the future looks a little less bleak. That would definitely draw attention to the companies who have performed well in this tough banking environment, namely Goldman and JPMorgan. Sidelined investment money would likely flow into solid performers like Goldman and JPMorgan. This would be the best scenario, just like splitting those aces.

Scenario No. 2 is where we split the eights. This is if Lehman's conference call goes poorly and they guide lower for the year, announce further write-downs and spin negatively. I think that would draw a lot of hedge fund money out of financials and Goldman and JPMorgan would likely be included in that negative flow of capital. If so, I think there would be a buying opportunity at a lower price for these two great investment banks. Goldman has the best traders in the world and JPM has the best balance sheet in the sector. I like these two on a dip.

In gambling, the house always wins. But in trading we can win and win consistently if we cut losses. I like this trade with parameters only. In any scenario or preplanned strategy, I need an out, so I use stop-losses to the best of my ability. If Goldman falls below $150, I am out no matter where I entered the trade. It should not get down there, so if it does, that means something out of my field of vision is going on and if that happens I want out. It's the same story if JPM moves lower than $35.50.

If either or both take out these levels on the downside, I am out of the trade or trades, period. I will live to trade another day. And always remember my motto...

"Trade with your head, not over it."
At time of publication, Bolling was long GS, although holdings can change at any time.

Eric Bolling is a host on the new Fox Business Network. Bolling was one of the developers and original panelists (nicknamed "The Admiral") on CNBC's "Fast Money."

Bolling is an active trader specializing in commodities, resource trades and ETFs.

Bolling is a member of several exchanges including The New York Mercantile Exchange (NMX), The Intercontinental Exchange (ICE) and The Commodity Exchange of New York.

After spending 5 years on the Board of Directors at the NYMEX, he became a strategic adviser to that Board of Directors where he assisted in bringing the company (NMX) public. He has been included in Trader Monthly Top 100 in 2005 and 2006. Bolling was the recipient of the Maybach Man of the Year Award in 2007 for his contribution of philanthropy and willingness to de-mystify investing to Main Street.

Bolling graduated from Rollins College in Winter Park, Florida and was awarded a fellowship to Duke University. Bolling was an accomplished baseball player. He was drafted by the Pittsburgh Pirates where he played before his career was cut short due to injuries. He honors his baseball past by sporting the NYMEX trader badge, R.B.I.