Wells Fargo and Company (WFC)

[Porgie Tirebiter]

Yeah, I think they are projecting some decrease in earnings for 4Q 2016 and 1Q 2017, but after that projections are for increasing earnings. $4.13/share in 2017, not too shabby. But $55 is probably too much to pay for it.

All the big banks have been vilified, it was Well's turn. Management got complacent and liked the numbers they were seeing and neglected to dig a little deeper into how those numbers were generated.

We should be seeing a rising rate environment and some push to get rid of some of the most onerous regulation holding back banks. Financials are the place to be for the near future.

But no, I ain't chasing them. My trade is to sell volatility. Implied volatility exceeds realized volatility around 85% of the time. It's inevitable that the other 15% of the time will come around at some point. But my ultimate hedge is to take delivery of the shares, so I'm limited to companies I don't mind owning. Anyway, until that 15% of the time comes around I just keep the cash.

I like the comparison in this paper to the insurance business: http://www.riverparkfunds.com/downloads/news/Structural_Alpha_White_Paper_Final.pdf

The pioneering work in the field of behavioral psychology and economics by Amos Tversky and
Daniel Kahneman demonstrated that loss aversion is a more powerful motivating factor than gain
satisfaction. Investors are regularly driven by their fear of loss, often making decisions that are
far less rational than would otherwise be expected. For example, in derivative markets, investor
demand for protection usually increases in the wake of crisis. Not surprisingly, it is during these
periods that the option premiums associated with this protection also generally increase.

When people are overpaying to buy protection at the wrong time, that's when one needs to be in the market selling it.