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Speculative Trade: Royal Bank (RY)
May 29th, 2007 by 
investoid
Like a lot of other bloggers, I think RBC’s (TSX: RY) drop of over 2% on Friday was an overreaction to marginally lower than expected results. As I’ve said before, the value of mean analyst earnings estimates is dubious at best. As lots of people have indicated, this represents a good buying opportunity to pick up RBC shares at a relatively cheap price.
Since I want to maximize the benefit of this drop, I am looking at an options trade. For instance, the July 07 $60 call options closed yesterday at $1.10, the same price they did on Friday which is where I looked at picking them up at. They had closed at $1.90 on Thursday, representing a 42% drop. As RBC’s price returns to its previous levels in the next few days/week or two, the price in the options should return to close to the level they were at (they may be slightly less due to the time decay).
I am currently in the process of switching brokers so I don’t have funds to trade this right now, but I think it’s a pretty good, but risky, short term investment. I’ll check back by the end of the week and see how the trade is fairing.
Note: this is not investment advice, you must do your own due diligence. Please see my disclaimer for full details.
Posted in Investment Strategy, Stock Opinions, Buy | 
May 29th, 2007 at 9:03 am
I was looking at options on RY too, but I haven’t traded them in a long time so I don’t remember the ins and outs enough to feel confident with actually pulling the trigger on a trade. My gut says it’s a good way to go though…
MD:)
May 29th, 2007 at 7:58 pm
I think RY’s drop had more to do with profit taking and ’selling on news’ than anything else. The earnings were essentially in line.
May 30th, 2007 at 5:54 am
1,10 for RY options seems pretty good. If you would buy options, you are better off with banks than anything else. As their business is stable, it is easier to predict the stock fluctuation.
FB.
June 2nd, 2007 at 5:07 pm
[…] Tuesday I gave a speculative opinion on Royal Bank call options. The bank had strong earnings but did not meet expectations, and as a result got hammered. I […]
November 6th, 2007 at 12:26 am
when everything went into the crapper during this time i bought calls on BNS because it has more exposure outside of the US than CM, RY, & TD. But i didn’t wait long enough and bailed for only a small single digit gain instead of the double where BNS still sits now. too bad.
DH