BAC Trade Follow Up

Yesterday I showed you BAC which was underperforming the market badly, I said I was thinking of shorting BAC and confirmed I bought puts on BAC yesterday, those January $6 puts are now up 27% in one day.

 Here's the daily, note the loss of momentum in the price candles and volume.

Here's where I bought the puts for the WOWS Options Model Portfolio, when BAC broke $5.50 (an obvious stop level), it was the final nail in the coffin. As BAC is one of the top 5 holdings or at least was, in most major hedge funds (think about Paulson's flagship Advantage Plus fund that lost nearly 50% of AUM with BAC as a top 5 holding), after it broke below the psychologically important $5.00 level, I have maintained it would bounce before year's end so hedge funds can engage in window dressing, 'The Art of Looking Smart" and sell their BAC positions in to some demand so they don't send prices lower. They want BAC out of their portfolio for their 2012 prospectus to new clients as holding BAC (especially as a top 5 position) after it lost over 65% on the year, simply doesn't look good. Isn't it interesting that BAC broke down late yesterday as the 27th was the last day of the year for hedge funds to adjust their portfolio because of the T+3 settlement rule? In other words, they used any strength, and BAC at $5.50 is a 10% move which is huge when you are talking about holding millions of shares, to sell BAC and get it off their balance sheet. As soon as the window dressing date passed, BAC started falling apart. I would guess BAC is headed back to sub $5.00 levels.

Here's a visual of underlying trade...

BAC (Bank of America) breaks $5.00 which is a line in the sand in white, as expected when it happened, BAC bounced to allow institutional money to try to unload in to some kind of demand rather then unload in to weakness and push prices against them. Right at the 27th, the 15 min chart goes negatively divergence and at the break of $5.50 is already leading negative.

You just saw Wall Street doing some year end window dressing, I think I'll hold BAC for now and maybe start replacing some financial ETFs with stocks like this and JEF among others.

5 inside days for JEF, also in good head fake territory.