Chart courtesy of Stockcharts
We are pleased to report that the PUT Options we purchased on U.S. Bancorp (USB) yesterday for $1.00 per contract, closed today at $1.45 for a gain of 45%. We bought the September 2009 series with a strike price of $22.50 for $1.00 per contract (UEEUX).
U.S. Bancorp fell yesterday $0.92 or 4% to close at $22.10, however we were surprised to see this parlay into a 45% rise in the value of the PUT Contracts. We would normally expect to see a move of a much smaller ratio than 10:1 which just shows have volatile options trading can be.
The broader markets in general look overbought to us and the financial sector appears to offer the best opportunities to short this market. If you are not too keen to short USB you could take a look at Bank Of America which we see as being in a similarly precarious situation.
A quick look at the above chart and we can see what we hope is a good correction for USB and also that the technical indicators have peaked for now which bodes well for further falls.
In terms of an exit strategy we usually target a trade which we think has some certainty of generating a return of 100%, but we have yet to place a sell order, we will observe for a little while before making a move.
US Bancorp has a market capitalization of $42.26 billion with 1.91 billion shares outstanding, a P/E ratio of 26.87 and closed down $0.92 today at $22.10. US Bancorp trades on the NYSE under the symbol of USB.
Your thoughts are of course most welcome.
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