Financial Stock Options

Brian Hicks

Updated March 17, 2009

The culprits behind our financial calamity could double… if not triple your investment in the next three weeks.

No kidding.

And if new guidance isn’t delivered in three weeks, lawmakers will force "legislation changing the rule that has forced banks to write down billions of dollars in assets."

"The SEC has destroyed $500 billion of bank capital by its senseless marking to market of these assets for which there is no marking to market, and that has destroyed $5 trillion of bank lending," says former FDIC Chair William Isaac. "That’s a major issue in the credit crunch we’re in right now. The banks just don’t have the capital to start lending right now because of these horrendous markdowns that the SEC’s approach required."

Blaming our financial chaos solely on mark-to-market accounting is absurd, though, as corporate banking irresponsibility played a big part in our mess, too. For more on that, read this.

But, as I said, that could all change in the next three weeks.

To benefit fully from this change, you’d have to buy the positions as we speak. Unfortunately, we can’t name them here without unfairly running up values. That’s what happens when you write for a popularly read free daily.

As Options Trading Pit readers will tell you, the gains are unlimited with these two positions.

It was March 10 when Options Trading Pit recommended two beaten down financial call options with immediate term upside. And it was a good thing they did. Four trading days later, Options Trading Pit readers were up 92% and 61% and were advised to take half off the table to lock in quick gains.

And they still see no reason to exit the remainder because of what’s happening in the next three weeks.

You see, the head of the Financial Accounting Standards Board (FASB) just told a House panel that "in three weeks" there’d be new guidance on mark-to-market rules. The hope is the new guidance will allow financial companies some flexibility in accounting for toxic accounts that are destroying balance sheets.

As they stand now, the rules require a company to value, or "mark," assets on the books based on the price they’d bring in if sold today. While these rules provide transparency and don’t allow companies to assign any value they choose, they can also cripple a business when no market for an asset exists.

Simply put, as the market has collapsed for securities backed by debt and mortgages, the banks have had to write down sickening losses because there’s no market to trade in. But the argument is if banks don’t have to mark their assets to the market, losses may not show up and banks can wait until the market stabilizes again… a near-term catalyst for financials.

For more information on mark-to-market accounting rules, I direct your attention to acting Chief Accountant U.S. SEC James L. Kroeker’s testimony on mark-to-market rules.

Good Investing,

Ian L. Cooper

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