DB Hits A Record Low (And Our Puts Are Up 166% Today)

This morning, Deutsche Bank hit a record low, dropping 6.5% to below $12. So far this year, the embattled bank has lost 52%.

deutsche-bank

As I warned you in February, Deutsche Bank is the proverbial canary in the coal mine of the global financial system.  It poses systemic risk because it is poorly managed, even more poorly capitalized, and party to $60 trillion of derivatives contracts.

Now the U.S. government is chasing it down for billions of dollars of penalties on fraudulent mortgages it sold before the financial crisis, but German Chancellor Angela Merkel has said that the German government will not bail out the bank if it runs out of money.  This is a recipe not only for DB stock to drop to where global interest rates are – zero – but to damage the rest of the financial system on the way.

And right now, one of our DB puts is up a whopping 166%.

Here’s how to profit…

We Are Witnessing The Beginning of A Long Unraveling

The problem with situations like these is that they gain downward momentum from which it is very difficult to recover.  Financial institutions rely on the confidence of their counterparties and customers to stay in business.  As we learned in 2008 with Bear Stearns and Lehman Brothers, when that confidence falters, bad things happen.

The world is finally starting to wake up to the fact that it should not have confidence in DB’s ability to meet its obligations.  This means that the bank’s capital structure could crumble, starting with its stock price.  I expect DB stock to end the year in the low to mid-single digits.

My recommendations for DB remain the same:

  • BUY DB January 20, 2017 $5 puts (DB170120P00005000)
  • BUY DB January 19, 2018 $5 puts (DB180119P00005000)

And if you already own the puts I recommended earlier in the year, hang on to them. These are starting to pick up steam. The October $11 puts are up 166% today, while the January $10 puts are up 56%.

  • HOLD DB October 21, 2016 $11 puts (DB161021P00011000)
  • HOLD DB January 20, 2017 $10 puts (DB170120P00010000)

Don’t sell yet. The fun is just beginning.

Sincerely,

Michael

 

16 Responses to “DB Hits A Record Low (And Our Puts Are Up 166% Today)”

  1. Dear Michael, good call. But that’s not what I’m here to talk about… The fact is I’m actually praise DB has guts to ask the government not to step in and let the banks (which should include all the businesses) to sort out the problems, and let them shrink to economically sustainable size. Don’t you think it’s good for the future of business? At least it’s better than Elon Musk, he’s never once admitted wrong publicly. But that’s another topic, we’ll talk about that when you’re ready. Thank you for your guidelines and timelines.

  2. The Drunk of Wall Street

    Gotta gotta gotta love it. As those hippy folk singers used to sing “when will they ever BLEEPING learn? Banks got trillions of dollars in derivatives on their books. In some cases 10 holey-moley times their capital. DB ain’t the only puts I’d be buyin’ if I had the scratch.

  3. Hi Michael,
    I got in a few days ago on the DB puts at .19. Then the news broke and I suddenly those puts shot to .40. They’ve since returned to .21 with the DB rally. This has got to be a temporary blip unless a genuine attempt to bail out DB is seriously being contemplated. Presently the German government says “no bail out.” I’m hanging tight for the next round. I’ll look forward to your comments as the DB situation unfolds.

  4. The total open interest on DB puts is very small compared to the huge trading volume of the stock. i see this as a large impediment to serious opportunity in this market. There also appears to be increased volume just before the new recommendations are published. Can you explain this as it happened in every case this week?

  5. PAUL C. PAPLASKAS

    HI Michael;
    I covered my 400 JAN 2017 5.00 PUTS this morning while it was running up @.40 making a good profit. Then I started selling SHORT got in near the top.
    With the news coming Saturday noon that DB is playing around with FALSE info.
    Saying the U.S.A. will cut the 14B fine on DB.
    Looks like they are acting like WELLS FARGO!!!!!!!!!!!!!!!
    A bunch of CROOKS in charge…

  6. I shorted the whole U.S. banking sector.D.B.is being bailed out by u.s and e.u.Stay away from d.b. and sell your profit 😙and short bankining sector etf.If u.s. raises interest rates ,which there not,then sell your short.Take some of those d.b profits and buy silver.

  7. Note to Michael Hewitt:
    Isn’t there something that can be done by the US Justice
    Department. Here is what I’m saying. Deutsche Bank is a menus to
    our Global Economy. First, they have the largest Derivative book in the World
    that can blow up the Global Economy, which will cause other banks to fail, thus
    causing a domino effect. They admitted to the US Gold Silver price-fixing, yet
    their fines were paid to the US and Investors didn’t receive any compensation
    for their losses

    It’s obvious they were the Worlds one stop shop for
    manipulating the prices of securities and many other types of investments using
    derivatives. The Fraud just keeps on rolling along and everybody just accepts
    it as normal behavior. What has our World come to? So can’t we start some kind
    of movement by getting all of the Investment Newsletters based out of
    Baltimore, cause there all tied into the King of the Empire Bill Bonner. Appeal
    to the US Justice Department to shut down Deutsche Bank with signatures from
    all newsletter subscribers. Let’s do something besides just through our hands
    up in dismay. Deutsche Bank has to be severely punished and the Fat cats at the
    top making 15 to 30 Million per year who allowed this behavior to continue
    without paying any consequences. I’m just trying to say can’t we all come
    together as one for all, all for one, for once in our lives. This will be a
    Historic event.
    Are we all too busy to do the right thing for once in our lives?

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