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Anyone buying the BAC / AIG 2016 options?


ourkid8
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Kicking myself a little for not getting any this morning when they were cheaper but anything macro (or earnings) could make them much cheaper anyway. We shall see.

 

BTW, MBI 2016's started trading as well.... a current hated name for some of us around here :p

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I've added the BAC 2016s to my spreadsheet, for anyone interested:

https://docs.google.com/spreadsheet/ccc?key=0AhTPR9eP5nWedEF1SGVLdllJTnBMSDMzM3lYZ2d0SlE&usp=sharing

 

Great, thanks.

 

Thanks. According to this spreadsheet, JPM is actually cheaper that BAC?

 

The cost of leverage is lower, but you have to consider what the growth of the common will be.  BACs common growth should be much greater than JPMs (assuming the board is right here).

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racemize, thanks for the spreadsheet & updates.

 

No problem. 

 

I personally just rolled my BAC 2015 10s to BAC 2016 12s.

 

Hi Racemaze,

 

Looking at the data, can you explain the switch over point? is it a share price at which point that the warrant/option would yield the same return as the common?

 

Also, why not BAC 2016 10s? isn't it better (i.e., have a better return with your velocity term)?

 

Sorry for the newbie questions if it's been asked before (or you can point me to the right reading material).

 

thanks.

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racemize, thanks for the spreadsheet & updates.

 

No problem. 

 

I personally just rolled my BAC 2015 10s to BAC 2016 12s.

 

Hi Racemaze,

 

Looking at the data, can you explain the switch over point? is it a share price at which point that the warrant/option would yield the same return as the common?

 

Also, why not BAC 2016 10s? isn't it better (i.e., have a better return with your velocity term)?

 

Sorry for the newbie questions if it's been asked before (or you can point me to the right reading material).

 

thanks.

 

Yes, the switch-over point is the common price where the option would have the same return as the common.  The switch-over point, with dividends, includes the lost dividends assuming the current dividend amount (not including possible raises in dividend, which is almost certainly the case for BAC next year, so you have to do your own guesstimate/adjustment for that).

 

Wrt 10s vs 12s, I decided the increase in cost of leverage from ~3%->5% was worth the increase in velocity of leverage (30->43).  In addition, I could buy more of the 12s than the 10s, so I also increased exposure. 

 

Moreover, if you look at the 10vs12 comparison, the common needs to reach 17.77 by Jan 2016 for the 12s to be better than the 10s (currently), which I thought was a reasonable assumption.

 

That's most of my thought process on them.  It is also similar to what I did before, buying the 10s when common was around 12, so buying 12s when the common was around 14.

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