A few mid-week thoughts

Banks, banks & more banks

Well first off, we would like to apologize for not publishing our weekly ‘Market Malarkey’ this past trading week. We will be back to the regularly scheduled publishing of ‘Market Malarkey’ (also does anyone have any thoughts on this name for our weekly market write-up?). Second, we would just like to take a moment to review the possible trade we went over in the last ‘Market Malarkey’. While our VIX 20c 3/22/23 trade idea was not a groundbreaking one, it was a profitable one. As shown in Figure 1 if a trader bought the call at open for 1.02 after a -40% max drawdown this trader could have more than doubled their initial investment. The trader would have done this by selling the call on the 3/9 or 3/10. (Figure 1)

Figure 1 via WeBull

We are sure you have heard the story about Silicon Valley Bank (SVB) but if you are not up to date we recommend you read the

Ashenden Finance

deep dive here. But long story short SVB is the 2nd biggest bank failure in United States history, by assets under management. (Figure 2)

Figure 2

Will the SVB collapse spread to other banks? Yes, however, it is likely to be contained to regional banks and credit unions due to the fact these institutions are not as highly regulated. Large banks like Bank of America (BoA), and Wells Fargo (WFC) are more than likely to be fine. The possible issues of the collapse of SVB will likely affect regional banks that have large unrealized losses when compared to equity. (Figure 3)

Figure 3 via Bloomberg

As usual, the FED appears to be stepping in to “save the day”. As shown in Figure 4 on the FEDs book they are loaning out around $150bn+ to the banks. At the time of writing, we do not have any confirmation on which institutions have asked for the FED loans. However, it is not a wild assumption in our view to believe banks like Comerica (CMA), KeyCorp (KEY), and many other regional banks likely tapped into this liquidity. (Figure 4) Will this solve their problems? It is impossible to say with certainty but in our view, this liquidity injection will keep the markets happy in the short term.

Figure 4 via FED

One might be asking does all of this turmoil create possible trade opportunities? In our view yes it does and we plan on expanding on this view in a different piece coming very soon. (Hopefully)

DISCLAIMER: We are not Financial Advisors, and all information presented is for educational purposes ONLY. Financial markets can be extremely volatile, as such using good risk management is a must.