2011 Archive - Mad Hedge Fund Trader

Featured Trades: (THE BANK OF AMERICA MELT UP), (BAC)

3) The Bank of America Settlement is Huge. For those Macro Millionaires who bought the (BAC) March, 2011 $12-$14 call spread that I recommended on December 7, this is your big payday. The North Carolina based 'too big to fail' bank announced a settlement with government agencies Fannie Mae and Freddie Mac over claims that (BAC) failed to adequately disclose the risks on 787,000 home mortgages they bought. Estimates of (BAC's) potential liability from the suit ranged up to $250 billion, and likely criminal prosecution of senior management. The settlement amount came in at only $3 billion.

Needless to say, this is a hugely positive development for the stock, which opened up 6% Monday morning, and is now up $2.54, or 22% from my initial trade alert. The March call spread has skyrocketed from 56 cents to $1.40, a gain of 150% in four weeks. Those who sold the March, 2011 $10 puts against the position made even more. I bet you didn't think your first trade in a new, untested, and unknown program would generate the best trade of your life. But I did.

I just ran the numbers on the Macro Millionaire portfolio, and in your first month you have earned a total return of nearly 17%. Of this, nearly half, or 7.50%, is accounted for by the (BAC) position. At this point, the spread is worth $1.40 out of a potential maximum value of $2 on expiration. So you have already wrested 70% of the potential profit from the trade.

I am convinced the call spread will expire at its $2 maximum value on March 18. But when you make this much money this fast, and one position accounts for such an outsized portion of your total performance, it becomes a risk control issue. So the more cautious among you might consider cutting half the position. I am going to hang on for the 'E ticket' ride for now, but when I bail, you'll be the first to know.

Well done, Macro millionaires!

Featured Trades: (MY RUN IN WITH THE LAW)

3) My Run in With the Law. I'm sorry I'm late getting my letter out today. I was racing home from San Francisco on Highway 24 when the California Highway Patrol pulled me over for doing 80 mph in a 65 mph zone.

The officer asked me where the fire was, and I told him I was rushing back to my office to get my investment newsletter out. He asked if this was like a stock market letter, and when I said yes, he informed me that in addition to speeding, I would be cited for a pink taillight.

I pointed out that several pension funds relied on my letter for direction and that the sooner they got it, the better their performance would be. The officer then asked if CALPERS, the California Public Employees Retirement System, was one of those. When I confirmed this, he told me that this was his pension fund, that it had lost a third of its value in the last two years, and tacked on a third violation for excessive smoke belching out of my tail pipe.

I upped the ante by informing him that a lot of home owners read my letter for real estate advice. The cop sighed that his own house had dropped in value by half, and hit me again for using my cell phone while driving, a $148 fine.

Then I noticed a Marine Corp. gunnery sergeant's pin on his uniform. I casually mentioned that I had been a jarhead captain and was a combat pilot in Desert Storm. He murmured under his breath that he hated all officers, and then noticed the life sized blow up Barbie Doll sitting in my passenger seat that I used to gain access to the carpool lane.

As he handed me my fifth citation for illegal use of a commuter lane, a minimum $340 fine, I decided to keep my mouth shut. Who knew we financial types were so unpopular on Main Street? Looks like the next time I need to rush back from the city, I'll be riding my bicycle.

January 5, 2011 - The Bank of America Settlement is Huge

January 3, 2011 - My Run in With the Law