Short the Regional Banks

June 20th, 2008 | Posted in Investing, Stocks

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You guys are probably a bit bored by now with my Potash (POT) trades.  Or more likely if you are trading along with me, you are eagerly waiting my next profitable Potash trade.  Well I’m not quite done.  I’ve reversed my position as I said I would.  I officially went short Potash yesterday afternoon.  I purchased Sept ‘08 $230 Puts @ $22.61.  So far I’m up 4.5% on that position.

Now that I’m in the shorting mood, I added one more short position.  I purchased Jan ‘09 $17.5 FITB Puts @ $8.6.  So far that position is down 9%.  I’ll have to wait a 3-4 weeks for that move to play out.

I also opened Jan ‘09 $20 WB Puts @ $5.30 this morning.  Wachovia has a juicy 8.6% dividend at this level.  I believe their sub-prime exposure will force them to cut it, driving down the stock price.

My 2 financial short positions are prone to headline risk.  Bills to save people from foreclosure tend to give some small pops on these stocks.  Also any interest rate news can move them.  Conversely you can play the pandemonium.  When one stock craters sometimes other financials follow sometimes without reason.  Some banks are in good shape.  Others are not.  If you wait for another regional bank to report bad news you’ll get the pop.

Sell into those pops. Don’t get greedy. This is a trader’s market right now.