How to Catch a Potential 200% Payday from the Banking Crisis
It’s still all about the banks this week, but we’ve got an added wrinkle to contend with – the Federal Reserve’s decision on interest rates this Wednesday.
Even though the U.S. government has implemented numerous plans to backstop banks, there’s still a big question regarding what the Fed plans to do regarding its interest rate policy. For me, it’s a 50/50 split on whether they raise or not, and if they do, I don’t see them raising any more than 25 basis points.
But the market’s reaction won’t just come from the decision itself. Even more important than what they do will be Jerome Powell’s commentary on how and why the Central Bank came to its decision. If they project a strong message that the banking system is stable and they’re confident that the current storm will pass, quelling the current environment of fear, we could see a rally as capital flows back into all the bank stocks that have been so badly beaten up during the crisis.
This is especially true of regional banks, which are experiencing the majority of the recent volatility. Good news from the Fed could send them skyrocketing, giving us a chance to catch a potential triple-digit profit on the ride up.
There’s no clearer place to see the chaos in how regional banks are trading than in the chart of Direxion Daily Regional Banks Bull 3X Shares (DPST), an exchange traded fund that seeks daily investment results of 300% of the daily performance of the S&P Regional Banks Select Industry Index.
DPST was up more than 14% in early trading today. That sounds like a big move, and it was, but now it’s given a lot of those gains back – but that’s okay. DPST is trading more than 65% lower than where it closed on March 3, 2023 (just 11 sessions ago).
If the Fed’s upcoming commentary manages to quell fears regarding regional banks, we could see a massive gain in DPST in a matter of days.
I like buying to open a DPST April 21, 2023 $11/12 Call Spread for $0.25 or less. Plan on exiting the position for a 200% profit – or – if the position drops 50% below your entry price.
This is a speculative trade, so make sure you don’t allocate any more than 2% of your risk capital to it.
Keep an eye on your inboxes this week as we continue to unpack the banking crisis, deal with the Fed, and find opportunities for profit along the way.
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