Put options for Bearish BOA

Put options for Bearish BOA
July 5, 2015

 
The NFP (Non-Farm Payrolls) report was released one day earlier than normal, last Thursday instead of Friday. This was due to the 4th of July holidays in the United States.

The change did not influence the way markets were trading as “uncertain” was probably the right word to describe current conditions, therefore small ranges were seen all over the trading dashboard.

The reason for this uncertainty comes out of Greece and the referendum that was taking place over the weekend, as no one really knew how markets would trade the day after the referendum. Therefore, dull price action and small ranges are the norm.

However, the jobs report did bring something to the medium term horizon positioning, as it showed average income slowing. While the unemployment rate dipped lower to 5.3%, labor participation rate fell even harder. Add to this, the fact that previous NFP releases were revised to the downside, and just like that, Fed may have problems lifting rates the way they forecasted.

So far the market was pricing in two rate hikes this year, but this may be off the table given recent data.

The Market reaction was not that big at the release of the NFP, given the fact that it is more focused on Greece. When Greece is behind us, the Fed will come into focus again.

If the Fed starts to be dovish, then the banking sector is going to be the most affected. Of this sector, the Bank of America (LON:BOA) seems to be more bearish than its peers.

When a central bank is lifting rates, banks flourish, and the opposite is true when interest rate are at low levels; banks will struggle.

Add to the fundamental picture, the fact that from a technical point of view and the $18/share level seems to be the right place to sell, as it has the potential of a temporary triple top. I am favoring a put option after next week’s Fed minutes are released.

Even if the minutes are lagging as they refer to a meeting that happened three weeks ago, if the “feel” is bearish/dovish, then end of month expiration date for a put option is advisable.

The way to find out if the outcome of the Fed minutes is bullish or bearish is to look at how many doves/hawks there are and decide based on the outcome. If there are more doves than hawks in the Committee, then that is the go signal for Bank of America put option.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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