Trading When Stocks Run
and Reverse
Today presented two opportunities to trade around a couple
of positions that I have. I still believe strongly in both positions but in one
case General Motors (GM) moved too much and in the other case Regions Financial
(RF) moved against my position.
General Motors
General Motors and Ford are both
having a really difficult time since they focused so much on truck sales and
the rising price of oil and gasoline have made trucks very unattractive. GM
made a huge move to the downside today, going lower by 6.76%. The company’s
earnings outlook was reduced again in the current quarter, in the next quarter,
for the year, and for the next year. But the move itself is too far to fast, in
my opinion. Therefore I sold half my puts which were up over 85% in two weeks.
I will watch the stock and hope for a 3% move up at the open this coming week
and possibly re-establish the full position if the outlook for the company has
not changed.
Regions Financial
Regions
Financial is another short position that I have and the stock has been in
trouble as of late with all banks struggling for profitability, balance sheet
stability, and the high costs of their dividends. Regions dividend is currently
at 13.30%. For this main reason I switch from a short position in National City
Bank to my current position of short Regions Financial. When Fifth Third had to
shave its dividend, the stock plummeted and therefore I own 12.50 August Puts
on Regions in anticipation of a similar move when the have to lower their
dividend.
Today
though saw a reversal of sorts in Regions which allowed me to increase my short
position in the bank. I now own 12.50 July Puts in addition to the August Puts
mentioned above. This increased short position should pay off in the short-term
with stock declines in anticipation of the dividend cut and double when the
actual dividend cut happens. At that point I would exit the trade.