What To Do About Your Positions On Their Lows




I mentioned the possibility of sharing a thought around regional banks on Sunday… and here it is.


Amateur traders took a beating recently in regional banks.  I personally know several folks who got punished trying to bottom tick First Republic Bank before it was seized by regulators and sold to JP Morgan Chase.  Many of these traders [and others like them] ultimately took the pain, closed the long trade and, the more foolish among them in my opinion, flipped around and got short.


I think that was a mistake.  I’ll talk more about that below.


Traders have gotten short names like PACW, WAL, ZION, and the regional bank etf KRE.  Depending on when they got short, many of these traders are in the throes of gains given the moves we’ve seen in the regionals over the last several weeks.


“I’m just doing the opposite thing because that’s what made money recently,” said no one in particular, but everyone in general.  This is, of course, always a good strategy for engaging with the market… for idiots. Lots of new traders [and I use that term loosely] are part of the meme-stock movement that gripped so many wanna be traders early in the pandemic as amateurs banded together on social media to push stocks of certain companies higher.


Now many of these same “traders” are now stacking bets against regional banks as rumor based volatility and fear roil the sector following the seizures of three mid-sized banks in the last two months.


Negative sentiment

The turn against banks is a relatively newer trade for newby traders. In March, when the banking turmoil began, many were willing to buy bank stock dips and hope for a rebound.


More recently, according to data monitored by Vanda Research,rookie traders began taking short positions against a number of regional banks. The new funds they added to put options, which are considered a sign of negative sentiment, amounted to $45,000,000 for the five-day period ending Thursday, well above long run averages. 


Larger institutional traders like hedge funds have had the same sort of bets in place for quite a while. Those traders added another $100,000,000 to put options over the same five-day period, according to Vanda, also higher than long run averages.


A Different Thought

I think the regional banks might be due for a relief rally.  Consider:


PACW -


WAL - 





ZION


That’s the story.


No guarantee of a rally… but it definitely looks to be in the realm of possibility.  Besides, I love ideas that are close to their presumed stop points as its one of they ways I minimize my per trade risk.


Also... have a look at the regional bank etf which captures the performance of the names above and many others. This is how I would play the trade using the Relevant Lo around $26 as the Ultimate Stop and $35 as the stop for any current short term long.


KRE



That’s the story.


No guarantee of a rally… but it definitely looks to be in the realm of possibility.  


Hope it helps