Looking For The Next First Republic Bank

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Los Angeles’s Far East Bank is about to get a large, unscheduled withdrawal (Heat, 1995).

Looking For The Next First Republic

About a day before First Republic Bank (FRC) went bust, bought $3 strike puts on it. I wrote this on my trading Substack afterwards, at the beginning of this month:

I can’t promise this next bet against a bank will cash as quickly, but on a number of metrics, the bank I bet against today looks worse than First Republic did before it released earnings last week.

First Republic A Week Ago

Here are some metrics on First Republic before it released earnings last Monday, when its bigger-than-expected drop in deposits led to its death spiral:

  • Piotroski F-Score: 0 (remember, scores below 2 indicate financial distress).
  • Overall fundamental rating: 3 (on a scale from 0-to-10)
  • Relative Strength: 22.4
  • Overall technical rating: 0 (on a scale from 0-to-10).
  • Failed Portfolio Armor’s gauge of options market sentiment.

And here’s how the new bank we bet against compares now:

  • Piotroski F-Score: 0
  • Overall fundamental rating: 2
  • Relative Strength: 22.14
  • Overall technical rating: 0
  • Failed Portfolio Armor’s gauge of options market sentiment.

The trade we opened on this bank offers nearly 8x more potential upside than potential downside. Details below

The bank holding company is Fulton Financial Corporation ( FULT 1.12%↑ ), and this is my trade:

A vertical spread expiring in September buying the $10 strike puts and selling the $7.50 strike puts for a net debit of $0.28. The max gain on 10 contracts is $2,220 and the max loss is $280, and the break-even is with FULT trading below $9.72.

The Portfolio Substack on 5/1/2023

Playing With The House’s Money

Flash forward to this past week, and I sold half of those contracts for a net credit of $0.75, or a 168% gain. I’m holding the rest of the put spread on FULT for more gains in anticipation of the bank continuing to slide. If you’d like a heads up when I place my next bet against a regional bank, feel free to sign up for my trading Substack/occasional email list below.