Tuesday, February 28, 2012

Aqumin Volatility Newsletter 02/28/2012 - $WFC

Don’t declare the patient dead just yet….

It is funny how money finds its way to certain stocks. After 6 months of chaos in the Financials one just has to look over the last 3 months or so to see a group rising from the dust. This blog has been pretty consistent on the return on the Financials since mid-December and for the most part it has worked out. Really the crush in implied volatility of the group showed the way after Jefferies Co. (JEF) survived the last scare. The question now is if there is more room?

The simple view below is the AlphaVision™ for Bloomberg Market Monitor. I track all listed equities, ETF’s and Indexes with traded options. The landscape just follows Percentage Price Change and Market Cap. The names move up and down and change color in real time depending on what is going on. It is as easy to mind 1000 stocks as 20. What caught my eye here on a listless day yesterday was which Big Cap names were moving. The largest percentage up moves (Green and Fat) for Big Cap stocks were for the Banks. When was the last time the market saw that? The banks that were down in lock step (Red and Fat) were all related to China as they start to implement reforms. Normally the big up moves in the Financials would be lost, but when seen in context they stand out quite a bit more.

2-28-2012 9-04-03 AM

Contrary to what the Occupy Movement (remember those moaks?) thinks, finance will lead things higher. The fact that money poured into the Big Names on a slow day is just another sign that we go higher, albeit slowly. As reported in Bloomberg Data, WFC has the largest Market Cap of any financial stock and is trading around 10x trailing earnings in what could only be described as a horrible environment. Maybe that’s why the Great Buffet upped his stake. The implied volatility is too cheap to sell options so I would go with deeper calls with longer expiration dates. It is just a question of leverage (which you get with calls) over dividends (which you don’t). Wow- maybe WFC can trade at 11x trailing earnings?

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