$KRE is a regional bank Index and I have written extensively in the past years. I am bullish on regional banks, on NII, loan growth, M&A, and generally de-regulation. Many big banks in the Index are sitting with excessive capital and will continue their existing buyback plans or add to them… in short lot of tail winds and short of recession, expect them to do better.
With that, You can buy $KRE Jan 26 $60 and simultaneously sell $60 put for credit, that is you get paid anywhere between $0.05 to $0.15 depending on execution. I already own $KRE, and have calls, but hey if you are getting paid, add some more!
Closed 1/3rd of the position today for $5.85 today. If the stock continues to grind higher, then I will hold it, if it moves sideways or declines, I will take my profit. I still hold the stock and other call spreads.
Subsequent to this post, I sold another 1/3rd… Starting next week bank earnings will come… I will be adding or setup another trade in this name next week.
Sold some more Jan $60 risk reversal for -0.65, i.e., I got paid $0.65 per share. Hopefully these credit concerns die down and I could close these at profit. Need some luck here…
Probably I should have been explicit… this is a risky trade. The credit concerns are real. As I mentioned a few days ago, credit has the potential to derail this rally in a big way. The risk reversal is a wrong strategy, you should not be selling any puts, that will expose you to downside. The correct trade here is do a call spread, so your profits and loss are defined. Even better, sit out.
So Fed was in hiking cycle, and they continued it until Silico Valley Bank went down… now they are still continuing QT, and until something breaks QT will continue… Say Jim Bianco..
formal QT may end, but the balance sheet is rolling off about $24B every month just from fed policy of not buying new MBS and other related covid stimulus.
$24 billion of declines spread over four accounts:
MBS is well known. There are folks who believe Fed should buy mortgage securities to support the mortgage market. Fed started buying MBS only after GFC and they want to eliminate MBS from their books is understandable.
Fed will act only if the issues is systemic. However, there are so many ways Fed can inject liquidity, and they can do it in hurry, i.e., overnight they can solve liquidity issues, if they choose to.
Expect many regional banks to buy smaller companies. US still have over 4400 banks, the cost of compliance, security are forever increasing. So banks need to merge to stay relevant. With this administration loosening the regulation, and regional banks generally have better capital structure, can do M&A.
Before Jay Powell interview, $KRE was at $61, I had nice gains on this risk reversal trade… then, Fed Chair went out of his way with his comment.. " December rate cut is not a foregone conclusion" Everything tanked.
When I said I need luck, I was hoping there are no hidden bigger credit risks hiding somewhere that is going to pop… Well… when the president is not around, others are willing to step up…
So we heard Jay Po put a timeline on ending the QT, that is after November operations, it is coming to an end. But he also committed to invest the proceeds of maturing MBS in short-term bills… to tilt the duration and increase treasuries %.
Well, for those who are reading this as lapse regulation and oversight.. some may view that as “deregulation”. Irrespective of how you view it, Big banks and banks in general are going into a very favorable regulatory environment, that is less onerous on capital, M&A approval, or expanding into new areas like “stablecoin”, “crypto lending” etc.
Miki Bowman, who oversees the Fed’s bank supervision division, told staff today she’s planning to shrink the 500-person group by 30%. The goal is to accomplish this “as much as possible” with buyouts, according to an internal readout
