Silicon Valley Bank Collapse – Bank Stocks LEAPS Option Opportunity

The Silicon Valley Bank collapse has put the markets in turmoil. When things like this happen human nature kicks in and its fight or flight for most people. 

The real question is whether this SV bank collapse is part of a larger banking situation like what happened in 2008 which everyone remembers. Or if it is more confined to this single bank and it’s a huge opportunity to get long the bank stocks now while they are at lows. 

In this post we will discuss: 

Can what happened to Silicon Valley Bank happen to other banks as well?

What is the outlook for bank stocks moving forward?

How do we best trade the bank stocks now using options?

And we will show you exactly how to place a LEAPS option trade in (BAC) on the option trading platform. 

——————————————————————–

Hey guys, Darren here. Thanks for reading. 

We talk about action steps you can take today to increase profits and reduce risks in your portfolios by trading options. 

Real quick: Please check out and download the FREE options Workshop in the link below. It talks about the two main reasons why options can be less risky and more profitable than just buying stocks alone. It also details how to profit in both directions and pick your win percentage which you can’t do just buying stocks alone. 

Also, please comment below! I appreciate it as it helps to get the video out to more people.

DISCLAIMER, I am not a financial planner and I am not recommending trades. Please do your own research and if you are new or learning options, I recommend you start small.

————————————————————————

Can what happened to Silicon Valley Bank happen to other banks as well?

Yes it can. But it is extremely unlikely. Here is why. Silicon Valley Bank was different from most other banks in that it was a very niche bank. It loaned money to tech startups (Thus the name Silicon Valley Bank) as opposed to the general public. 

Back in 2021 and early 2022 SVB took nearly $100B and invested that into government backed bonds with a significant portion locked away for 3-4 years at an interest rate of just 1.79%. 

So they basically made a bet that the Central Bank was not going to raise interest rates as fast as they did. When they were wrong it put them in a very dangerous position. SVB was now in the Red on all of this money since bond value is based on their yield. 

Once the Tech customers got wind of this, the trouble began. People started to talk. Most of these startups had way over the $250K FDIC insured limit in their accounts. In fact 97% of SVB’s funds they held was not FDIC insured. So at the first sign that SVB was having issues, many of these Tech companies pulled out their money. When they all did it at the same time it initiated what is called a bank run and it was just too large for SVB to manage.  

Bank of America, Chase, Wells or Citibank are not like Silicon Valley Bank. These banks lend a much smaller portion of their portfolios to Tech startups. Silicon Valley Bank likely had a much higher percentage invested in Tech startups. Silicon Valley Bank was known as the Venture Capital funding bank for Tech startups.  Much of the other bigger banks are lending to the general public. So they are much more insulated should their business loan customers ever pull their money. 

FYI, if you have more than $250K on any one institution, I still recommend you spread the wealth and add some additional banks or brokerages so that you can have the FDIC insurance coverage. 

What is the outlook for the banks moving forward?

Banks are a great place to invest in strong economies. When consumers are spending and unemployment is low. This is when profits tend to grow and loan defaults are typically kept in check. On the other hand, banks tend to perform poorly during recessions and other uncertain times. So banks are a cyclical business.

There are a couple of reasons why banks tend to perform poorly during recessions and other difficult economic climates. For one thing, they can face a wave of loan defaults if unemployment rises. Also, consumers pump the brakes on spending during recessions, which leads to lower demand for loans. Lastly, when interest rates are rising, their mortgage loan activity declines.

However, banks make money by lending money. They borrow at lower rates and lend at higher rates. At least that is the way it is supposed to work. So higher rates are generally good for bank stocks! 

Even before the SVB collapse, all of the bank stocks had been hit due to the current economy and rising rates. However, with this current turmoil with SVB, and unless we see lines at Wells Fargo running out the door with everybody pulling their money out, banks are on sale now and here is why!

Banks Are On Sale 

Let’s take a look at one of my favorite banks, Bank of America.

When we look at the 1 year stock chart on TradingView for BAC Bank of America we see that it is at a 12 month low.

Now we can also go to Factset Earnings Insight and look at the Forward 12 Month PE Ratios and see the Financials in general are very low at a 11.9 PE.  

So they are cheap and on sale!

Banks Do Well Coming Out of Recessions

We also know that banks tend to perform well when coming out of a recession. Earnings growth is expected to turn positive in the 3rd quarter of this year. So not too far off.  

Looking at the Factset projected earnings growth for the Financials we see that they are expected to be around 12-13% growth for the year.   

Revenue growth will be great as well at around 8%. The highest of all the sectors!

So since the S&P Earnings Growth is expected to turn positive in the second half of this year we should consider getting out in front of it now while the stock prices are still low. 

I broke down the Banks in a previous video which I’ll link to below. JP Morgan Chase, Wells Fargo and Bank of America will all do well over the next year.

However, we will go with BAC Bank of America here since I think it is one of the best. 

———————————————————————-

How do we place a LEAPS Option Trade in BAC Right Now?

Let’s go to the TastyWorks trade platform. It’s the best platform for trading options (I’ll put a link below).

We punch in BAC in the upper left and make sure we hit the Trade tab in order to see the option chains. You can see the stock is currently trading for $30.

We will first look to buy a deep in the money call which is called a LEAPS option. I like to go out about 2 years so we will click on the January 2025 option chain.

We click on the Ask to Buy the 20 CALL option. We go Deep in the money in order to closely duplicate the owning of 100 shares of stock outright. The cost is $1200. However, with the stock price at $30 there is $10 intrinsic value already built in. So I like to look at this as the 12.00 cost – $10 intrinsic value. So its really like paying $2.00 to control the 100 shares of BAC.

However, think about it. To buy the 100 shares outright at $30 is $3000. We are paying less than ½ that cost at $1200.

Let’s switch to the curve mode and look at the profit zone. 

If the stock moves from the $30 where it is today up to $40 where it was just a short time ago, we should make about $850 in profit. I think this could easily happen as the Silicon Valley Bank dust settles and people realize that not all of the banks are collapsing.

Key Takeaways

The LEAPS option trade is a cost-efficient way of investing long in the bank stocks while they are still at lows and poised to move higher in the second half of this year.

The Silicon Valley Bank collapse has presented an opportunity to buy the bank stocks right now at an additional deep discount. 

———————————————————————————– 

Alright guys, I’ve put a link for the FREE Options Workshop. Be sure to grab that. It discusses exactly how to profit month after month utilizing option trades like this one.  

Please let me know how you feel about the trade we just placed and what you’re trading in the comments below.

Thanks for reading and see you in the next one!