The ban on short-selling of financial stocks in the US has led me to be very interested in buying puts in some of these companies. In particular I have bought puts in Bank of America which was bid up after announcing a plan to buyout Merrill Lynch. The acquisition of Merrill and previously Countrywide is only going to cause significant dilution in the value of BAC and I think will cause a drop in share price.

There are probably several other opportunities to short financial stocks by purchasing put option contracts. Even though shorting of the stock is off-limits, put contracts are moving quite well and there is plenty of liquidity in the market to move in and out of positions quickly. The short sale restriction is probably inflating the values of these companies since the short squeeze right after the government announcement and will likely settle lower as investors take profits and in anticipation of the ban being lifted in about a month.

[tags]bank of america, put options, merrill lynch, shaun carter, short selling, financial markets, investing, financials, banks[/tags]