- via Barron's:
- "Since the financial crisis, the Fed has created an annual CCAR "stress test" doomsday model, in which banks must prove they have enough money to survive another big financial crisis. The exercise, which is designed to prevent taxpayers from once more having to bail out the nation's financial institutions, is a tradable event.
- "So how should you position yourself this year? We have long advocated that investors buy Bank of America (NYSE:BAC), using any swoons, including the current one, to sell put options and pick up more shares. The stock is sensitive to rising interest rates, and we believe management feels compelled to return capital to investors who have stuck with the stock over the years.
- "While we still like that trade for long-term investors, we are intrigued by Goldman Sachs (NYSE:GS)' latest client recommendation to trade Citigroup (NYSE:C) ahead of the capital-return news. Citigroup's options are priced near their lowest level since the financial crisis and lack the usual fear and greed premium, evidence that investors think the stock is unlikely to move much in the absence of Trump's regulatory relief.
- "Goldman disagrees. "We believe investors are missing the significance of the upcoming CCAR result, particularly for Citigroup, where the potential for increased capital return is greatest among the large banks, " Goldman derivatives strategists Katherine Fogertey and John Marshall recently advised clients in a trading note. "We like buying the calls now, before anticipation for CCAR builds and options prices increase."
- Now read: Citigroup: Worth A Closer Look
Original article
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