Random Thoughts: Why Bank Shares Are Ripping

By Todd Harrison  MAR 16, 2009 1:58 PM

Chatter of a structural shift abounds.


Editor's Note: The following was posted in real time on our premium Buzz & Banter. It's being shared here for the benefit of the Minyanville community.

Gate Sniffage! - 10:31 a.m.




Answers I Really Wanna Know  - 11:09


Hungy Hungry Hippos - 11:57 a.m.

It's just another manic Monday as Citigroup (C) sprints 35% higher (aka 63 cents), Bank America (BAC) tacks on 13% (77 cents), AIG (AIG) adds 66% (33 cents) and Wells Fargo (WFC) and JPMorgan  (JPM) add a svelte 5% (about a buck).  I am, of course, leaving Fannie  (FNM) and Freddie's (FRE) 35% gains off our list as, well, that's only fifteen cents each

Why? There's (unconfirmed) chatter around that the government is in the process of "de-hypothecating" shares they own in the financials, which means they wouldn't allow any shares owned by the government to be borrowed (and subsequently shorted).

Given the size of these moves -- along with stated mission to stabilize the system -- it certainly wouldn't shock me if this proved true

As chatter continues to swirl that some game-changing rules are on tap (which would explain the outsized percentage moves in the Freddies, Fannies, Citis and AIGs of the world), the rest of the tape is trying to assimilate the ramifications. Talk about playing a game during an earthquake, eh?

For my part, after taking a stab at some Research In Motion puts this morning (which will be stopped out above $41.50), I added some Ultra S&P 500 (SSO) (on the first pullback, with a trailing stop) as an upside hedge/pseudo-spec and an eye towards S&P 800. We vibed the "S's over N's" out of the gate and that's how I'm playing, at least for the day.

Keep in mind that tomorrow is Turnaround Tuesday and even if this is an uptrend (within a broader, secular bear market), we could well see a reversal tomorrow. Where you stand is a function of where you sit. For some, the near-term nuts in guts is where it's at. For others with a longer-term lens, moves (counter to your positioning) should be used to add exposure.

For both, I would again put Friday's expiration on your radar, for if there is something up the government's sleeve, it wouldn't shock me to see them unleash it into the option expiry.

Fare ye well, Minyans, and best of luck as we truck through the muck.


Position in RIMM, SSO

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

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