StockFetcher Forums · General Discussion · How to Play the Canadian Banking Crisis for a Quick Double<< >>Post Follow-up
mystiq
650 posts
msg #77505
Ignore mystiq
8/13/2009 12:47:05 AM

How to Play the Canadian Banking Crisis for a Quick Double
By Dan Amoss
August 12, 2009


Everyone thinks they’re safe from the current financial crisis.

No one thinks they’re doomed.

I’m talking about the Canadians, of course.

See, lately, I’ve read a lot about the superiority of the Canadian banking system. And naturally, my contrarian instincts prompted a search for a way for you to make money as the Canadian banks go down.

As you may know, an easy way to play the downside of stocks is through put options. Here’s a quick primer on how they work…
Put options are a limited risk, leveraged way for you to make money when stocks drop.

For example — when a stock falls 5% in a day, put options may go up 50%. When big drops happen, puts can go up hundreds of percent in hours.

And since they’re limited risk, if you’re wrong, you’ll never lose more than you put up.

My point is — there’s no easier, safer, and faster way to grab huge gains from downward stocks than through put options.

Having said that, let’s take a look in on how you can use them to make money on the Canadian banks. First, the “macro view…”


The Canadian banking system has won accolades for avoiding direct exposure to the most tempting forbidden fruit: products like subprime mortgages, credit cards, leveraged buyout loans, and loans to finance insane commercial real estate purchases.

The financial press loves Canadian banks. On May 19, The Wall Street Journal ran a piece suggesting that these banks are a model of sustainability, and now have the opportunity to acquire U.S. banks on the cheap:
“Not long ago, Canadian banks were considered slow footed, provincial, and too conservative to flourish in the global boom for financial institutions. Now that banks in the U.S. and Europe are reeling from loan losses and face growing government scrutiny and ownership, Canada’s six major banks are seen as a potential model for battered financial institutions. TD Bank, Royal Bank of Canada, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce, and National Bank of Canada posted more than C$3 billion (US$2.5 billion) in combined profit in the latest quarter.” [Ed. note: quarter ending April 30, 2009.]

Canada’s biggest six banks account for more than 85% of the assets in the country’s banking system. By and large, these banks made a smart decision to avoid securitization. Securitization refers to loans that banks originate, bundle together, and sell off to pension funds, money market funds, insurance companies, and other institutions.

But this doesn’t mean that Canadian banks have no credit risk. On the contrary, they have plenty. Mark to market accounting has not yet cut down Canadian bank earnings, because the Canadians have not yet accounted for the impending wave of mortgage, consumer loan, and corporate loan losses.
They will by the end of 2009. It’s impossible to avoid. And just to give a perspective on how quickly lending grew at the Canadian banks, the chart below shows that assets at the top six Canadian banks grew from C$1.3 trillion in October 1999 to C$2.7 trillion in October 2008. Equity at these top six banks grew in line with assets; all six kept their ratios of assets to common equity fairly constant since 1999.


Growth in assets, even if accompanied by growth in equity, is always a risky proposition for banks. At the time the loans are made, everything seems fine. Then, when a serious recession arrives, and a dramatic credit loss cycle begins, the market value of loan portfolios can rapidly decline by 5% or 10%, pushing the banking system to the edge of insolvency. Insolvency is when the value of assets is less than the value of liabilities. Bank regulators don’t like this scenario and pressure weaker banks to raise very expensive, dilutive equity capital in order to protect more senior lenders, including depositors, from suffering losses.



Canada has just entered what will ultimately be an enormous credit loss cycle, and by the time it’s over, the Canadian banks could easily lose their pristine reputations. Until the middle of 2008, Canada’s economy was booming. Its mining, energy, and manufacturing sectors are world-class, and every other sector was pulled along for the ride.

But the wheels fell off last fall. According to Statistics Canada, the unemployment rate rose to 8.4% in May — the highest in 11 years. Ontario, with its heavy manufacturing base and ties to the “Detroit Three” auto companies, is especially hard hit; Ontario lost 234,000 jobs, or 14% of its entire manufacturing work force, since last October. Ontario will lose even more jobs this summer as GM and Chrysler dramatically cut auto production. Alberta has slowed dramatically too. Just a year ago in Alberta, every skilled construction worker was working overtime on oil sands projects. Now many projects are postponed and workers are getting laid off. The unemployment rate in Alberta nearly doubled from May 2008 to May 2009, to 6.6%, and is heading higher.

For Canada, this credit cycle will probably be worse than the one in the late 1980s. According to RBC Capital Markets, annualized loan loss provisions for the entire Canadian banking system peaked at 2.88% of all loans in 1988. As of April 2009, this figure was just 0.77%. Over the next year or two, loan loss provisions should easily triple or quadruple, which would cut deeply into profits and capital…sending the worst of the Canadian bank stocks down.

So how do you play it?

First, I recommend you dig in to the major banks to figure out the one with the most exposure to unemployment rates. Then, simply visit Yahoo! Finance, enter in their symbol and click on “options” on the top left hand side underneath “Quotes.”

You’ll see all of the put options available on that stock. Pick a good one and you’ll be able to double your money as these stocks go down.

Regards,
Dan Amoss

johnpaulca
11,297 posts
msg #77506
Ignore johnpaulca
8/13/2009 12:53:43 AM

This sounds like a pump to me.

mystiq
650 posts
msg #77513
Ignore mystiq
modified
8/13/2009 3:54:12 AM

BMO = Bank of Montreal
BNS = The Bank Of Nova Scotia
RY = Royal Bank of Canada
CM = Canadian Imperial Bank of Commerce
TD = Toronto-Dominion Bank

?any filters to symlist these symbols?


08/26/09 CM Canadian Imperial Bank of Commerce Q3 2009 Earnings Release
08/27/09 RY Royal Bank Of Canada Q3 2009 Earnings Release
08/27/09 TD Toronto Dominion Bank Q3 2009 Earnings Release
08/28/09 BNS Bank of Nova Scotia Q3 2009 Earnings Release

12/03/09 CM Canadian Imperial Bank of Commerce Q4 2009 Earnings Release
12/03/09 TD Toronto Dominion Bank Q4 2009 Earnings Release
12/09/09 BNS Bank of Nova Scotia Q4 2009 Earnings Release



Fetcher[
SET{ ALAST5, count(RSI(2) BELOW 5, 40) }
SET{ BLAST95, count(RSI(2) ABOVE 95,40) }
ADD COLUMN BLAST95
ADD COLUMN ALAST5
add column rsi(2)
add column rsi(2) 1 day ago {rsi2 -1}
add column rsi(2) 2 days ago {rsi2 -2}
add column rsi(2) 3 days ago {rsi2 -3}
add column rsi(2) 4 days ago {rsi2 -4}
add column rsi(2) 5 days ago {rsi2 -5}
add column rsi(2) 6 days ago {rsi2 -6}
add column rsi(2) 7 days ago {rsi2 -7}
add column rsi(2) 8 days ago {rsi2 -8}
add column rsi(2) 9 days ago {rsi2 -9}
add column rsi(2) 10 days ago {rsi2 -10}
SORT COLUMN 5 DESCENDING
draw Linear Regression(55,1.0)
draw weekly VWMACD(2,3,1) on plot weekly VWMACD Histogram(2,3,9)
draw obv
draw weekly cmf(2) line at 0
draw weekly williams %r(2)
set{STRSI, stochRSI(40,2)}
draw strsi line at .50
add column strsi
apply to symlist(bmo,bns,ry,cm,td)
]




5 results from: Thursday August 13, 2009
Symbol Last Chg(%) Vol blast95 alast5 RSI(2) rsi2 -1 rsi2 -2 rsi2 -3 rsi2 -4 rsi2 -5 rsi2 -6 rsi2 -7 rsi2 -8 rsi2 -9 rsi2 -10 strsi

RY - ROYAL BANK OF CANADA 46.65 2.39 1377900 10.00 0.00 72.46 39.56 5.34 19.73 40.68 12.96 61.90 59.59 97.18 89.55 74.91 0.71
CM - CANADIAN IMPERIAL B... 62.44 1.88 268100 8.00 0.00 68.87 42.36 13.07 43.26 61.43 29.94 81.97 61.26 95.62 83.47 68.33 0.65
BNS - Bank of Nova Scotia 40.88 1.41 291200 7.00 2.00 54.42 22.88 2.82 10.33 26.90 27.14 76.23 57.12 96.46 87.44 67.73 0.53
D - TORONTO DOMINION BANK 58.23 1.62 846300 5.00 1.00 70.47 47.36 3.51 12.77 27.77 21.15 93.78 90.55 94.52 85.93 50.74 0.71
BMO - BANK OF MONTREAL 47.17 0.66 645000 5.00 0.00 49.18 36.47 5.06 18.69 40.20 12.38 83.30 80.74 96.33 93.71 81.63 0.47









mystiq
650 posts
msg #77551
Ignore mystiq
8/14/2009 6:40:56 AM

!(-.-)!

mystiq
650 posts
msg #77578
Ignore mystiq
8/15/2009 4:22:24 AM

RY
PUT OPTIONS Expire at close Fri, Jan 15, 2010
Strike Symbol Last Chg Bid Ask Vol Open Int
25.00 RYME.X 0.20 0.00 0.10 0.25 3 13
30.00 RYMF.X 0.40 0.05 0.35 0.40 1 431
==
PUT OPTIONS Expire at close Fri, Oct 16, 2009
Strike Symbol Last Chg Bid Ask Vol Open Int
25.00 RYVE.X 0.15 0.00 N/A 0.15 1 478
30.00 RYVF.X 0.15 0.05 0.05 0.20 2 1,113
****

CM
PUT OPTIONS Expire at close Fri, Sep 18, 2009
Strike Symbol Last Chg Bid Ask Vol Open Int
30.00 CMUF.X 0.05 0.00 N/A 0.15 40 202
35.00 CMUG.X 0.40 0.00 N/A 0.20 20 77
40.00 CMUH.X 0.05 0.00 N/A 0.15 10 82
45.00 CMUI.X 0.20 0.00 N/A 0.25 30 151
50.00 CMUJ.X 0.30 0.00 0.10 0.40 5 114
***

BNS
PUT OPTIONS Expire at close Fri, Dec 18, 2009
Strike Symbol Last Chg Bid Ask Vol Open Int
22.50 BNSXX.X 0.30 0.00 N/A 0.25 5 28
25.00 BNSXE.X 0.15 0.00 0.10 0.30 1 69
30.00 BNSXF.X 0.60 0.00 0.30 0.65 25 59
==
PUT OPTIONS Expire at close Fri, Sep 18, 2009
Strike Symbol Last Chg Bid Ask Vol Open Int
22.50 BNSUX.X 0.80 0.00 N/A 0.15 0 34
25.00 BNSUE.X 0.10 0.00 N/A 0.15 5 92
30.00 BNSUF.X 0.05 0.00 N/A 0.20 5 71
35.00 BNSUG.X 0.40 0.00 0.25 0.40 3 136
***

D
PUT OPTIONS Expire at close Fri, Jan 15, 2010
Strike Symbol Last Chg Bid Ask Vol Open Int
20.00 DMD.X 0.09 0.00 N/A 0.10 12 173
22.50 DMT.X 0.15 0.00 0.10 0.15 2 91
25.00 DME.X 0.26 0.01 0.20 0.30 5 422
==
PUT OPTIONS Expire at close Fri, Oct 16, 2009
Strike Symbol Last Chg Bid Ask Vol Open Int
20.00 DVD.X 0.05 0.00 N/A 0.05 20 110
22.50 DVT.X 0.15 0.00 N/A 0.05 0 358
25.00 DVE.X 0.10 0.05 N/A 0.10 1 1,274
30.00 DVF.X 0.45 0.12 0.35 0.40 33 3,048
==
PUT OPTIONS Expire at close Fri, Sep 18, 2009
Strike Symbol Last Chg Bid Ask Vol Open Int
25.00 DUE.X 0.05 0.00 N/A 0.05 10 10
30.00 DUF.X 0.20 0.00 0.15 0.25 14 358
***

BMO
PUT OPTIONS Expire at close Fri, Dec 18, 2009
Strike Symbol Last Chg Bid Ask Vol Open Int
20.00 BMOXD.X 0.30 0.00 0.10 0.30 0 10
22.50 BMOXX.X 0.25 0.00 0.15 0.35 25 30
25.00 BMOXE.X 0.35 0.05 0.35 0.40 30 147
30.00 BMOXF.X 0.65 0.05 0.65 0.80 20 308
35.00 BMOXG.X 1.10 0.05 1.20 1.45 10 571
40.00 BMOXH.X 2.45 0.25 2.30 2.50 310 4,999
45.00 BMOXI.X 4.40 0.30 4.10 4.30 21 218
==
PUT OPTIONS Expire at close Fri, Sep 18, 2009
Strike Symbol Last Chg Bid Ask Vol Open Int
20.00 BMOUD.X 0.10 0.00 N/A 0.10 20 121
22.50 BMOUX.X 0.30 0.00 N/A 0.10 0 103
25.00 BMOUE.X 0.10 0.00 N/A 0.10 4 89
30.00 BMOUF.X 0.16 0.00 N/A 0.15 5 82
35.00 BMOUG.X 0.39 0.00 0.15 0.30 1 82
40.00 BMOUH.X 0.75 0.15 0.60 0.75 316 913
45.00 BMOUI.X 2.00 0.30 1.80 2.10 32 496

mystiq
650 posts
msg #77827
Ignore mystiq
8/22/2009 5:22:07 AM

5 results from: Thursday August 13, 2009
Symbol Last Chg(%) Vol blast95 alast5 RSI(2) rsi2 -1 rsi2 -2 rsi2 -3 rsi2 -4 rsi2 -5 rsi2 -6 rsi2 -7 rsi2 -8 rsi2 -9 rsi2 -10 strsi

RY - ROYAL BANK OF CANADA 46.65 2.39 1377900 10.00 0.00 72.46 39.56 5.34 19.73 40.68 12.96 61.90 59.59 97.18 89.55 74.91 0.71
CM - CANADIAN IMPERIAL B... 62.44 1.88 268100 8.00 0.00 68.87 42.36 13.07 43.26 61.43 29.94 81.97 61.26 95.62 83.47 68.33 0.65
BNS - Bank of Nova Scotia 40.88 1.41 291200 7.00 2.00 54.42 22.88 2.82 10.33 26.90 27.14 76.23 57.12 96.46 87.44 67.73 0.53
D - TORONTO DOMINION BANK 58.23 1.62 846300 5.00 1.00 70.47 47.36 3.51 12.77 27.77 21.15 93.78 90.55 94.52 85.93 50.74 0.71
BMO - BANK OF MONTREAL 47.17 0.66 645000 5.00 0.00 49.18 36.47 5.06 18.69 40.20 12.38 83.30 80.74 96.33 93.71 81.63 0.47

======================================


5 results from: Friday August 21, 2009
Symbol Last Chg(%) Vol blast95 alast5 rsi2 -1 rsi2 -2 rsi2 -3 rsi2 -4 rsi2 -5 rsi2 -6 rsi2 -7 rsi2 -8 rsi2 -9 rsi2 -10

CM - CANADIAN IMPERIAL B... 61.35 0.99 281500 2.00 0.00 64.53 51.87 41.94 14.25 38.78 68.87 42.36 13.07 43.26 61.43
BNS - Bank of Nova Scotia 41.71 1.04 409800 2.00 1.00 87.06 72.13 46.70 11.57 33.36 54.42 22.88 2.82 10.33 26.90
D - DOMINION RESOURCES ... 34.22 1.63 3105100 2.00 1.00 86.15 69.43 22.99 4.93 30.86 48.74 68.62 11.36 24.09 24.09
RY - ROYAL BANK OF CANADA 47.43 0.87 844800 2.00 0.00 86.31 71.74 45.37 18.55 61.94 72.46 39.56 5.34 19.73 40.68
BMO - BANK OF MONTREAL 47.03 1.31 439100 2.00 0.00 78.57 64.68 18.36 8.35 27.12 49.18 36.47 5.06 18.69 40.20


(-.-)


StockFetcher Forums · General Discussion · How to Play the Canadian Banking Crisis for a Quick Double<< >>Post Follow-up

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