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Monday, July 25, 2011

Anatomy of a Short - Day Three

Had to make a choice this morning -- cash in a 35% two-day profit or go for the gold.  BAC opened at 9.97, gapping down from Friday's 10.13 close.  The August 11 puts I bought last Thursday for .90 traded at 1.25.  Tempting...

But, I couldn't ignore the fact that BAC was one of the most active stocks on the NYSE today, and traded off 1.18% when the broader XLF was off only .72%.  As I mentioned to someone, in somewhat technical terms... this is a suckish stock in a suckish sector in a suckish market.  Yet, the premium to intrinsic value is still only a very modest 25 cents.  Can't ignore that, right?

Although it looks like the histogram is considering a return to positive territory, the stock still trades below all of its moving averages.  MACD is possibly indicating a bounce back, while RSI continues to look bearish.  But, with no compelling contrary indicators, I'll go with my gut that a weak overall market will continue to hurt BAC's relative performance.

In the end, I compromised.  I sold about 1/3 of my position at the 1.22 level for a 35% profit and am sitting with the rest.  Tomorrow should be interesting.

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