ERICOPOLY

Yeah man, no worries. I was in high stress in November. The punch bowl is full again now.

LEVER UP! Hah hah. What better a man to run our country! Cut taxes and lever up baby!

quoting: As President, he would work hard to make America once again a country where everyone who takes initiative can flourish. And will his sons be taking initiative, or has he already robbed them of that?

I also think he sunk his Presidential hopes with this maneuver. The 99% are really going to elect a private equity guy with kids sitting on $20m apiece in their 20s with shit eating grins?

Those Romney boys are getting a disservice. I see them and think "born on third base, think they hit a triple". Let young people find their own way. Give them a lift when they are 40+ saddled with career stress, kids education savings, and retirement planning stress.

They can inherit your Roth IRA and leave it in there to compound for their lifetime. Yes, you have to take the estate tax hit but the tax advantages of the Roth trump it.

I'll admit I haven't a precise formula for calculating what the risk premium ought to be. Do you? Or are we just talking our emotions here. BAC's discount is 50% relative to JPM (comparing tangible book valuations). Expressed differently, in two years time BAC can haul in $30b plus after-tax (due to the NOLs). Yet a whole lot has to go terribly wrong between now and then to prevent that from happening. To me it just feels like the nasty "what if's" are discounted far too heavily.

And I don't think the convergence with peers is done yet. Per Uccmal it will get there by my birthday. JPM trades at 20% to tangible book but has the earnings power today that BAC won't be fully at for another 2 years. So it's okay to give JPM the 20% premium to BAC. But the spread between the two today is just plain ridiculous.

I know what you mean but I actually feel safer now because there are some things back then which I hadn't considered. Like: 1) I hadn't realized how another $3b would be coming in annually from New BAC phase 2 cost savings. 2) Never really had realized that $6b of annual costs would be saved from getting legacy asset services run off over next 2 years 3) Had never dreamed that the recently announced settlement would be immaterial 4) Didn't realize how much Tier 1 capital would go up 5) It's obvious to me now that the market participants have let it converge with peers in value (risk premium coming down). During July to December what happened is that all banks fell, but BAC fell hardest. And the gap doesn't widen when the market has a down day. There were all these rumors about the FDIC protesting the movement of Merrill derivatives into the FDIC protected bank. William Black was fear mongering over this. There were liquidity concerns surrounding the credit downgrades -- bank executives spent a lot of time on the phone calming clients.

My bet was initially 100% notional BAC upside without any BAC downside whatsoever. I was buying BAC calls and writing puts on other names to finance the calls. So there you go. Later I bought the puts back in and added to BAC (it was already on the way up then).

Still...that's like calling a bottom on the Dow at 10,000 and then it falling below 8,000 in the next couple months. My point is more that people shouldn't judge positions based on a very short term move in the stock price. Uh huh... yeah, right. Getting the most volatile stock in the market at 88% accuracy is like being wrong on the index by the same amount?

I once recommended The Coldest Winter by David Halberstam under the "books" section of this board. I think you guys should think about this kind of thing for what it is. I'm only risking money here folks. Just money.

Actually, it only fell another 22%. $15.31 high for the year... low of $6.31 for a day where I call the bottom, then it hits $4.92. Okay, so it fell $10 bucks and I called it after 87% of the decline had happened. August 8th: Low $6.31 Close $6.51 December 19th: Low $4.92 Close $4.99 Jan 14th: High $15.31

This is why I intend to hold onto what I can in my taxable account. Tons of dividends (and buybacks that can be tapped) that I can use to buy puts to fund purchase of long term stable growers like BRK.

I also think BAC was way more undervalued than AIG or MBI.

;D ;D Why only BAC? It's my only long position. My only short position too (short term put hedges purchased recently). Why did you sell MBI and AIG? Just feel like BAC will move up at a steeper rate? Yes I just think BAC will recover first given it's premier position -- I mean who drives down the street without seeing a BofA? The guy running MBI seems greedy and won't settle so it will take forever in the courts, and the AIG is held back by rock bottom interest rates which are staying low "forever". BAC's catalyst is just to stop looking like they can't earn (the "NewBAC" addresses this as does the runoff of the legacy asset servicing drag). I think I will be able to move into BAC warrants in the Roth when it gets near warrant strike price (hopefully on my birthday) and that will free up cash for some of the AIG warrants while keeping the BAC foot in the door. I think the BAC $5 calls that I hold will outperform the warrants up to tangible book value, then I'll make the switch.

That's why I wasn't a fan of the warrants. I figured if there was a big hit from something there is dilution risk. So that seemingly low strike price could turn out quite high. I calculated out that if you instead did a 1.2x leverage approach using stock+margin (and some protective puts) it winds up being the same returns as long as the leverage is maintained. So I have some far-out-of-the-money calls that I can use to ramp up the leverage as price rises (to keep it at 1.2x). Then some extra calls to lock in gains as well. This produces the same returns as the warrants but with less timing risk.

Anyways, BAC dropped 1.34% today and WFC dropped 1.05%. C dropped 2.18%. My point is the BAC scare is over. I bet traders will now buy BAC and hedge with WFC or JPM short.

Ha ha ha. So many movies come to mind, ha ha ha. Only one question Eric. You are not only betting all, or mostly all, but you are also betting on the timing of the event, aren't you? PS: I could not convince my wife of doing something like this, lucky you. I told her that it will be socially acceptable to the 99% if our story is that we made millions robbing the owners of Bank of America.

Ericopoly = Arnold Rothstein from Boardwalk Empire 8) hehehe but he thought of himself a gambler not a value investor ... and he died young I think http://en.wikipedia.org/wiki/Arnold_Rothstein I believe what I do lights up the same reward centers in the brain that keep gamblers at the table. It feels good when it goes up, I want to buy more when it goes down, it's never "enough". That's a gambler. However that 20% is still a nice amount of money that pays off our mortgage, funds the education for the children, and leaves a few year's of my prior pre-tax earnings to fund our after-65 nest egg. So I'll still be comfortable. It will be one of those "better to have loved and lost than never to have loved at all" stories. My kids might actually grow up much better seeing us as a normal working family -- did you see that photo of the Romney boys??? Yuck!!! Disagree with you. The same part of the brain may activate, but what you do is completely different than a gambler. - Gambler's make bets solely on the probability of a specific event possibly occurring. - You, along with any intelligent investor, do not make "bets" on an event possibly occurring, but that an event is completely inevitable...the event being that other investors eventually recognize the underlying value of something that has been completely mispriced. I would say it's more akin to someone rumaging through garage sales or attics, and looking for things that other people haven't recognized as having enormous value. The same joy may run through your brain and veins as a gambler who has won big, but it is as dissimiliar as any two things in life could be. Cheers! I like that more flattering depiction. However, my wife and I have already had the discussion that when BAC hits $20 we will push some money out to secure dividend payers like the JNJ and PG's of the world (in a completely separate account), some un-leveraged REIT funds (if they exist), and the like. All that stuff in the RothIRA. I can then sweep the dividends from them to my self-managed ROTH account. We're going to keep a big chunk of BAC in the taxable account and use a big chunk for purchasing a house with cash. The $20 BAC price produces a totally sick amount of money. And look at those Romney boys and that $100m trust fund. I don't want my kids to have that much. So this is my "last big score". Ha ha ;)

Exactly, this is entirely driven by taxes. In my RothIRA I can't even use margin, and taxes are not an issue. So in that account I can do it exactly as you say. This way of doing things is only temporary. Once I get to $10 per share on BAC I will write a deep-in-the-money long term call. My $10 strike calls that I purchased (already) will then take over. At that point I won't have a margin loan anymore and will have a much larger gain locked in.

Ericopoly = Arnold Rothstein from Boardwalk Empire 8) hehehe but he thought of himself a gambler not a value investor ... and he died young I think http://en.wikipedia.org/wiki/Arnold_Rothstein I believe what I do lights up the same reward centers in the brain that keep gamblers at the table. It feels good when it goes up, I want to buy more when it goes down, it's never "enough". That's a gambler. However that 20% is still a nice amount of money that pays off our mortgage, funds the education for the children, and leaves a few year's of my prior pre-tax earnings to fund our after-65 nest egg. So I'll still be comfortable. It will be one of those "better to have loved and lost than never to have loved at all" stories. My kids might actually grow up much better seeing us as a normal working family -- did you see that photo of the Romney boys??? Yuck!!!

I'll still have 20% of my present net worth if BAC is at $0 per share tomorrow morning. Your brother almost got shot dead while in the Eiffel Tower. I'll stay away from that crazy country with their handguns and I'll be fine (I'll be safer in LA perhaps -- he never almost got shot when he lived there).

Shai manages about $100k. The rest is in my trading accounts.

My strategy has two key features that I like: 1) you can move up the strike price of the hedge as the share price rises (you can sell the original hedge to harvest some of the value) 2) tax advantages (if this becomes a long term holding you don't get to take a tax loss on the call option volatility premium until you sell). But the put premium can be deducted as soon as it expires (or you sell it) Scenario (call): 1) You bought the $5 strike 2014 call in December when it was trading for $2. 2) Stock moves to $10 and you want to move up the strike price of your hedge? Can't do it. Scenario (margin+put) 1) You buy the common with margin at $5 per share in December and the put costs you $2 to hedge 2) Stock moves up to $10 and you want to move up the strike price? 3) Answer: Buy the $10 put and sell the original $5 put