Here we go again... I charted out BAC a few weeks ago when it got dumped to $5.10 on 500 million shares. It just broke below those lows with implied volatility spiking 11% to 194 not far from the 214 high. Options are being bid up anticipating an event and we all know that Bank of America will stay solvent to avoid another Lehman catastrophe however nationalization terms could wipe out existing equity. BofA acquired Merrill Lynch in September 2008 during the financial massacre and recently reported a $15 Billion loss at Merrill which forced BAC to ask for a hand out.
Bank of America reported its first quarterly loss in 17 years earlier this month. The bank also said losses at Merrill Lynch & Co Inc, which it acquired on Jan. 1, were so much worse than expected that Chief Executive Kenneth Lewis was forced to seek government help in order to go ahead with the deal. The government, which had already given Bank of America $25 billion in October under the Troubled Asset Relief Program (TARP), agreed to a rescue package in which it shares losses on a $118 billion package of residential and commercial mortgages, derivatives and corporate debt." (Reuters)
Also I read in the WSJ that the Fed was in charge of the transaction even when Ken Lewis had doubts. Our banking system is pretty messed up.
It will be interesting to see what happens here. Today BAC closed down 11.36% on 3.5x avg 3 month volume. The IV is close to its highs and today 412k option contracts exchanged hands which was more than double the average volume of 194k on the ISE exchange. Calls and puts were also very active and it's interesting that the ISEE (ISE Sentiment Index) call/put ratio stood at 289 up 180% from 186 (33.17k/11.48k). Also Ken Lewis the CEO of Bank of America bought 200,000 shares of BAC a couple weeks ago so anything can happen at this point so watch the technicals for a big short squeeze or a nationalization dump, or just scalp this son of a b*!
BAC Options & Volatility (Source: ISE.com, 2/5/09)
On another note, the Baltic Dry Index has seen a parabolic move to the upside recently. It looks like China is stocking up on dry bulk commodities, blog post pending.
