Trade Ideas Blog

How to Short $BAC All Over Again. Watch History Repeat.

Feb 5, 2009

The headlines sound an omnious alarm:

Bank of America tumbles on nationalization worries” (Reuters, February 4, 2009)
BAC continues to take it on the chin: teetering on bankruptcy, government bail out yada yada yada.  If you shorted this ride – congratulations.  But is the ride over? Maybe there is more opportunity yet to find in this stock by being a student of the very recent history that befell WAMU.
Most people aren’t aware, but BAC offers 10 classes of preferred stock.  Prices below are as of the closing February 4, 2009:
What Stands Out
All these issues descended to the $5 and $10 level – all but BAC-L which is still at $360 as of the close today. 
Back before WAMU collapsed a few preferred issues traded at the $1200 level that went the way of the dodo.  Will history repeat itself? 
Bottom line: all the other issues are down to $5 and $10. Why is BAC-L, which gives shareholders the right to purchase the common at $18.50, still so high?
I can’t explain it but with this lesson in history, my trading compatriots and I will be closely monitoring this today.  We’ll take the above issues and create our symbol list in Trade-Ideas and throw every alert at it and see what happens.
Good luck trading!
Jamie Hodge, Director of Trader Education, greatly contributed to this post.
Related Links
How to Create a Symbol List: Video
One of our Austin trader friends reported in on this trade:

I took 30 points out of BAC-L this am


Here is the chart of BAC-L: