Anyone have any option strategies to protect against a big downside here (the 2000 point major move)?
Are puts too expensive? Is the upside potential not worth the premium?
I am thinking if Citi or BAC goes bustola, that will be the catalyst for new lows...
and (courtesy of Marty Weiss), the facts are:
Massive Risks at America's Megabanks
(bill. of dollars)
B of A Citi B of A + Citi JPM
9/30/2008
Total assets 1,831 2,050 3,881 2,251
All derivatives 38,186 39,979 78,165 91,339
Credit default swaps 3,291 2,467 5,758 9,250
Exposure to defaults by trading partners 177.6% 259.5% 400.2%
Fact #1. Too big to save. Bank of America Corp. and Citigroup, Inc. have combined assets of $3.9 trillion, or 43 times the size of the Treasury bailout funds they've received to date.
Fact #2. Bigger losses ahead. Even before any further declines in the economy, an unusually large portion of their assets are already in grave jeopardy — commercial real estate loans going sour, credit cards loans tanking, auto loans sinking, and residential mortgages turning to dust. Now, as the economy continues to tumble, avoiding much larger losses will be almost impossible.
Fact #3. Big derivatives players. Bank of America and Citigroup are the nation's second and third largest high-rollers in the derivatives market, with a combined total of $78 trillion in these bets outstanding. That's over ten times the derivatives that Lehman Brothers had on its books when it failed last year.
Fact #4. They've bet far too much on each other's failure. Bank of America and Citigroup are also the second and third largest participants in the most dangerous derivatives of all — credit default swaps. These are the big bets that financial institutions make on the failure of other major companies.
I have only limited experience in options so any advice appreciated!
TIA! |
