The trick to this trade – and by trick, I mean risk rather than edge – is the binary nature of the announcement. In other words, we’ll walk in one day next week and the sector, as a whole, and the market, as a function of that price action, will be demonstrably higher or lower depending on popular perception of the package.
– Todd Harrison, "Get Ready for a Monster Move in the Market" , Minyanville, February 4
One day pretty soon the Obama Administration is going to announce their plan for dealing with the banks. Are they going to create a "bad bank" to buy up the toxic assets? What price will they pay? Will they implement more guarantee deals a la Citigroup and B of A?
Depending on the nature of the plan, as Todd Harrison writes, the financials are either going to get a big jump or they’re going to collapse. The best guess is that government plan will subsidize the banks in some way and they’ll bounce.
I’m not planning on trading it as it feels like pure speculation to me. But this is a good way to think about what’s coming.