The Volcker rule, or how I learned to start worrying but buy calls on financials anyway

by RollingD

Ladies and Degenerates, clench your buttholes and place your bets, banks are about to catch a big break.

After the big banks f*cked us all by gambling away our hardly-earned money we reigned them in with a set of rules under the Dodd-Frank Act, one of those being the Volcker rule. This rule prevents banks from acting like WSB’ers and yoloing on options, investing in hedge funds, and a slew of other autistic shit that puts Robinhood users to shame. The Volcker rule applies not only to American banks, but many foreign banks as well–it’s basically the entire roll of red tape, including a litany of grey areas, and these motherf*ckers absolutely hate it.

Rewind to 2017, Trump and the gang announced they didn’t like Dodd-Frank and were going to do something about it, probably because these rich bankers have been lobbying against the damn thing since its inception. Well the pot has been simmering for 2 long years, and its finally time for dinner. Next Tuesday the FDIC will be voting on the Volcker rule 2.0, and while we don’t know exactly whats in it, all the reporting on the subject cites sources as saying the banks are gonna like it. The message they want you to see is that Volcker 2.0 isn’t intended to give banks free reign to throw your savings at dumb yolos, but really is just about clarifying the rules. The original was somewhat thrown together and doesn’t fully account for the myriad of complicated situations that giant financial corporations with billions upon billions of dollars might find themselves in, especially as it relates to trading. So, we’re gonna make it all Barney style and easy to follow, and everyone will be happy…right? If you believe that, you probably belong here.

Trump and his cronies clearly worship the almighty dollar and don’t give a f*ck about you or me, and while this is unlikely to be a total rewind to before Lehman Brothers; you better believe there will be some gems buried in there for the banks. Pay close attention to if this vote passes and what exactly is in the new rule, because if it says they can use YOUR capital for risky investments we could potentially get another 2008, so buy calls. WHAT? But you said the banks are gonna f*ck us! Well…maybe…probably…or probably not, nobody really knows. But if it does happen, it isn’t going to happen Tuesday, or the Tuesday after, or the Tuesday after that. What IS going to happen is that banks are going to benefit from this, at the very least in the short term and probably for much longer after that. Weren’t you curious about why Buffett was buying up bank stocks last week? Well, this is it. Rate cuts eating into lending profits are about to matter a lot less.

Here’s a snippet from Bloomberg

– The Volcker 2.0 plan will tell banks that when they take stakes in third-party funds while underwriting or making markets for clients — permitted activities under Dodd-Frank — they don’t have to count it against overall limits for investing in private equity and hedge funds, the people said. The new rule would also boost the ability to hedge such investments and eliminate restrictions on certain foreign investment funds.

Volcker Revamp Could Free Banks to Boost Investment Fund Stakes

Did you catch that? Underwriting and market making activities will no longer count against overall limits. For those of you still drooling on the keyboard, that means banks will be allowed to significantly increase their liabilities in search of profits. There will be more news and clarity about Volcker 2.0 in the coming days, but right now it looks like banks are chomping at the bit and the FDIC is about to open the gates.

Just tell me to buy puts or calls! Who cares about the motherVolcker rule?

First off, I don’t care what you do. It’s not my fault if you lose your money. I’m a degenerate just like you and I’ll probably f*ck this up even if I’m right, but I’m concentrating on financial stocks/ETF’s with the best risk/reward ratio on their options. BAC and XLF calls are hella cheap and cost very little in extra premium if you want to extend your expiration out farther than the FDs you’re used to, but how can you not swing for the fences when the options are literally PENNIES. Most of these stocks are usually very stable, so the options are wildly mispriced in your favor going into events like this. If you all have some ticker suggestions I will update this later with a list of good candidates for the play, but if you just start looking at the financial sector you’ll see that damn near all of them are on special right now.

TL;DR

FDIC votes Tuesday to revamp the Volcker rule and allow banks to take more risk with their market-making activities, and clearly define grey areas that muddied the waters for both foreign and domestic entities.

BUY CALLS ON FINANCIAL STOCKS/ETFs.

Shower thoughts

  • The vote isn’t guaranteed to pass, which could absolutely f*ck FD calls. Hedge with FD puts if you’re worried, but these regulations WILL be loosened at some point as long as Cheeto and the Mnuch are around.
  • Gyna, Rocket Man, Iran, and Brexit are still real things to worry about if you’re thinking of buying long expiry calls.
  • Don’t forget we’ve got the FOMC coming up and we’re expecting rate cuts. One could argue that they are priced in already but nobody knows whats going to happen till it happens, and shit always gets wild when JPow steps up to the mic. Plan accordingly.
  • Be aware that if the Volcker 2.0 rule is too lenient it has the potential to cause big problems down the road. If banks get too wild with their new freedoms and something unexpected happens causing them to get margin called, it’ll be 2008 all over again. Buy some gold bars and a safe if you’re worried, but make sure you put your tin foil hat on first beartards.
  • I’m out of soap.

Other Links

Summary of Volcker rule – Six Ways the Volcker Rule Protects You

Wiki – The Volcker Rule

Reuters – Foreign banks to benefit from U.S. bid to simplify ‘Volcker Rule’

There’s other articles but they are paywalled and I’d sooner spend that $3 on some retarded .01 USO FDs.

Godspeed you autistic f*cks.

 

Disclaimer: Consult your financial professional before making any investment decision.

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