Tuesday, October 07, 2008

Re-Opening BAC Short Call

I'm still pretty miffed at having to unwind my bearish position on BAC last week, so I've decided to re-start it now that financials are looking a heck of a lot weaker. I sold short Nov 08 calls on BAC at 40, comfortably above the 35 strike price I had the last time. Comfortable for me, that is, given my risk-seeking tendencies.

Could BAC go to $40 by November, thus forcing me into another unwind? Perhaps, but the news out of Charlotte today isn't pretty. Here's an excerpt:

Late Monday the bank announced it would cut its dividend to 32 cents per share, down from 64 cents per share. The move will save the company nearly $6 billion annually in capital. In addition, the bank began a $10 billion sale of common stock.

Cutting the dividend by 50% and diluting shareholders by more than 8% are never good in the short term, even though BofA is doing this to stay healthy in the long term. Ken Lewis did the right thing.

This market is nuts, and I might be nuts for playing it. So what. I can handle the risk.