Bank of America (BAC) and Pfizer (PFE) — two of our core positions – have sold off with the broader market over the past two weeks, down around 10% and 5%, respectively. BAC’s sell-off has been exacerbated by the decline in the financial sector following the collapse of Silicon Valley Bank.
While California regulators have closed down Silicon Valley Bank and put in control of the Federal Deposit Insurance Corporation, I do not foresee a contagion across the banking sector. Rather, I believe this will be a short-term trading event.
This morning’s jobs report is far more relevant to how we trade. Nonfarm payrolls increased by 311,000 last month, above the 225,000 Dow Jones estimate. More importantly, upticks in the labor force participation rate and the unemployment rate are encouraging, as they could support a quarter-point versus a half-point interest rate increase by the Federal Reserve later this month.
With our BAC and PFE puts deep in the money, let’s accept shares. I will recommend calls to sell soon to continue to generate cash on these core positions.
BAC Mar Week Two (3/10) 35.50 Put
Current Stock Price: $30.09
Net Debit: $8.97
Action: Accept shares
Cost Basis: $44.47
Potential Rate of Return: I am targeting breakeven for this position
PFE Mar Week Two (3/10) 43 Put
Current Stock Price: $39.29
Net Debit: $15.12
Action: Accept shares
Cost Basis: $58.12
Potential Rate of Return: I am targeting breakeven for this position