Bank of America Stock & Citi Earnings... What's The Options Market Prediction?

let's take a look

let's take a look bank america yep

40s it's hard to tell exactly what

they're doing um

you know they got earnings and and

obviously the stocks have had

huge moves um people are still betting


the the the upside here but on the

upside in general

um what do what do you what do you think

you're seeing it's hard to decipher that

about june's um looks like a close but

they're 42.

okay yeah the 42 46 so 14

and 27. it looks like it's probably 12.5

12 500 by 25 000.

so somebody looks to me like they're

doing a 1x2

which is which is interesting so we

talked about a one by two call spread

i think last week or two weeks ago and

we started talking about um new


that that the big guys do use from time

to time

um and they use them really at times

like this we talked about

uh they were doing it in micron the 9110

the 9110 call spread

uh 1x2 in micron and here you see

they're doing it in bank america so

what they're what they're looking at is

they're buying one of these

and they're selling two of these so if

you buy one it's a 110 and sell the

other one twice at let's just call it 30

cents so

110 and 30 twice so it's a dollar 10 and

60 cents

so it's 50 cents you pay 50 cents the

most it can be worth

if bank america lands at 46 on june 18th

the most it could be worth is four


now i call these a little bit it's it's

uh it's a

pipe dream it's you know in order to

capture that four dollars it's

it's almost impossible right because if

you get close to 46 even at expiration

the last day

that call option is still gonna be worth

30 cents and you have your short two of

them so

two times 30 cents is 60 cents so 60

cents less four is

340. so you know you it's it's likely

that you can make

if the stock moves up that you can make

50 cents could make

a dollar fifty so it's about three to

one even maybe two dollars creeping up


if you're getting closer to expiration

but this is a a play that

people use when again we said when the

stocks go up

so if we look at let's look at bank


we saw what happened micro micro and

they were doing the same thing one by

two so here

we're looking at stocks have gone

i mean geez you gotta we gotta go back a

little further to kind of

really fill this out okay

so we have what we're looking at

you know that that's clearly something

some sort of pivot level

um we had this over here as something it

never actually reached all the way down


and now traded up and this was something

here and it looks like it's

sort of near the 40 line so we're what

do we do here 28 color 28

30 28 four six forty so six six

um you have here uh what is this this

is um i'm gonna fit this backwards so

i'm gonna go from 40

to 29 and a half that's ten and a half

ten and a half plus

34 is about

20 right around here so

24 and call it right here

so if i'm looking at this and this

and i draw a line here to here so from

the gap from exactly

that gap right from exactly that gap

you know you have the same thing you

have this move down here

which is the same thing i'm always

pointing to this sort of wave

wave theory oh sorry i think i press

backwards let's see if i can get back in


yeah let's do it real quick but

okay basically go from here to here

you go from here to here and then you go

from here back

and you can see that it almost ends up

right around here it's this is

20 call it from right here 24

to 34 is about 10 and a half 39 and a

half plus ten and a half is 40.

it gets you right to 40. so abc um

now people have been playing call

options but we've been talking about

risk reward and sort of um you know

having people uh

seeing exactly what we're looking at and

saying you know what this is uh been a

significant move

a significant move from all the way up

and uh

and and maybe we should take a little

bit off here and buy some call spreads

or buy calls

um but the banks are are up because of

the yield curve

you know they got to produce right

there's a lot of built-in expectation

for them to produce

uh um you know how how much did some of

these banks get affected by

you know maybe deleveraging the hedge

funds and prime brokers maybe they'll

talk about that

um you know have they there's a there's

an economist uh

who's actually really good he's former

barclays guy and uh

he his name is barry knapp and he's

really good

he's it's not for the beginner he's not

for beginner i have trouble following

him he's

he's a big macro guy um but has some

nice calls and i like listening to him

he's a smart guy um barry knapp k n a

double p you know maybe support him and

you can go check him out but

he's if you're into the macro he's he's

he's gonna talk the macro game

and um and he's good at it but he it's


high level high level economics um but


so you have this here and we're seeing

coal buying but

it's got to produce the the thing about

the banks is that they they're coming

out with

um the buybacks in the next i think

they're getting started in the next

couple of months so

on any drop you probably see you know

some buyers here

you know that that's what i got on bank

micron so i would suspect that you're


some shift of risk reward in these names

as well

um what are you seeing there let's just


right to the bank of america we're

seeing this 1x2 you've seen the 4246

so with that with this

you know move they're looking at 4246

one by two

and remember what that does is gives you

let's let's recall the one by two does a

one by two

call spread basically you can divide it

up into two pieces you can divide it up

into one call spread

4246 call spread and then you can just

take the other

call that you're short to 46 and that's

short against

you're probably long some stock so most

of these people who are doing this

they're long stock and they do this

trade on top of their stock okay

okay so now if the stock goes to 46 they

make on

the call spread completely and they make

on the stocks

from 40 to 46 and then they give up

anything above 46.

so that is telling you that this person

is comfortable selling his stock at 46.

okay he's basically said let me put a

trick the stock has made a big move

i don't think it's coming down a lot but

i also don't

think it's going to explode i actually

think it can you know come down a little

bit and then make another move going

into june

into the buy-back period and sort of

like be in this area of

sort of trending higher that would work


in that environment and so that's what

they're doing so i it's a trade that's

saying to you

two things one i don't think it's gonna


i don't think the banks are gonna just

completely fall out of bed

okay that's one two i believe that

they'll trade in a range

up or down this whole thing is gonna

work nicely that one by two will expand

so even if the stock is down to three

dollars you will see that 50 cents

not really moving price it will probably

stay around 50 cents

where that trade loses is if the shot if

the the stock just shoots

straight up through 46.50 and now you're

basically capped out at 46.

you still made good money and your

breakevens are going to be closer to 50

you know 50 and a half dollars but you

know at the end of the day if it starts

going through 50 you're out of that


and that's you know that people do this

when they're pretty

comfortable with with what they're

looking at right with the stock

that around this area i feel comfortable

i don't think it's going to crack so

you know that that's bullish for the

banks okay okay what are we seeing in

the other

city yeah city yep

so it's bank america probably similar


it was kind of shuffling around yeah

setting up for earnings

so it looks like they sold the 76es

there in in april

so let's see here 76s okay sell those

to buy tomatoes yeah looks like may 77

and a half and 80s

may 77 has gotcha okay so 10 000 times

so basically they're just moving around

they're saying

something similar we're going to need

more time

it's not explosive i need more time you

know i need out to may maybe even to

june you're probably seeing some stuff


let's see what's going on in june 16


yep so again it's it's

you know i maybe it's powell saying he's

not he's not gonna raise rates but

75 85 call spread you know this to me

smells like

either one another one by two right

right five

forty five hundred five thousand by ten

thousand almost so another one by two

which would be about a dollar thirty for

this trade so a dollar

five by let's call it 230 and 50 cents

so that is 235 and 50 cents so that's uh

50 cents twice it's a dollar 235 so 1.35

for this structure and the most it can

be worth is 10

the most you can probably probably make

without you know

getting out of it is probably six seven


seven bucks call it and uh especially on

a grind if it does grind up towards the

june so you get bad numbers or numbers

that don't exceed

expectations because we got some good

numbers built in there stock drops even

just a little bit and then grinds higher

this is going to work out perfectly for

them so they'll take you could take out

um you know six bucks we pay a dollar 35

six bucks

again three four hundred percent if that

happens so these trades work really


for the big guys you know it's one of

those trades where

you want to be long to stop to do this

and you could sleep like a baby at night

does that make sense yeah yeah yeah

because they you basically

and and remember how do we how do we

actually take advantage of it

remember what we said they were looking

for they were looking for this blue line

usually to be over here

which is telling you what what is this

saying to you marco the bull bear

when the blue line is closer to the

closest the calls are bid

and what are they selling here they're

selling the upside calls to people

people are excited about the banks and

they want to buy the calls they're

selling those upside calls this right

here is telling you

how the board is set up the calls are

better bid than the puts

okay if this was lower then you wouldn't

be getting a lot for the like if this


way down here these 50 cent calls they'd

probably be

35 or 33 cents does that make sense

yeah it would be different it'd be a

different price if this was way lower so

right now they're trying to take

advantage of this right here this three

month it's called sku

so in three steps of profit we go

through sku all the different facets of

skew how to think about it how to look

at it

how it's done how it's calculated and

what it is and and

this is how i basically took one little

thing a sentiment indicator to say

all right i'm if i need to look at sku

this is what i'm gonna look at here

skew is low that mean calls a bid here

skew is high that means puts a bid

okay nice all right good so that's

that's that's to me

it's interesting what they're doing in

the banks right it's the big guys are

telling you

things are okay in the banks they're not

going to crash but they're not going to

be explosive

just right now which means that maybe

earnings aren't going to be

that good they'll be okay they're just

not going to be explosive

this quarter okay okay yep okay before

before we jump into