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Halftime Report: As Banking Crisis Flares, How Should You Play BofA & Citi?

Thursday, 16 Jul 2009 | 1:32 PM ET

After three days of gains, caution has returned to the market after word the government denied aid to lender CIT Group, which is now struggling to stay afloat.

On Thursday the bulls had clearly been sidelined with the market now worried about what Bank of America and Citigroup will reveal in the their quarterly earnings not to mention IBM and Google; all of these companies report within the next 24 hours.

How should you be positioned? The Fast Money Traders break it down stock by stock.

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TAKE YOUR POSITION: BANK OF AMERICA

One day ahead of earnings, Bank of America finds itself thrust back into the spotlight with lawmakers slamming former Treasury Secretary Henry Paulson over his role in Bank of America's merger with Merrill Lynch.

Paulson acknowledged that he told Bank of America chief executive Kenneth Lewis the bank's management and board could lose their jobs if the company backed away from the merger but the former Treasury chief said he had done nothing inappropriate.

Fast Money Halftime Report
The Fast Money traders weigh in on the markets and share their midday trading advice.

With earnings due Friday, what’s the trade?

I wouldn't worry about Paulson, and frankly I don’t see too much downside to BofA, counsels Greg Troccoli of Opalesque. I’d own BAC outright because I think their acquisition of Merrill is going to pay off in a big way.

I recommend playing Bank of America with options, adds Brian Stutland of Stutland Equites. I’m a buyer of BofA stock outright but I’m also protecting myself as a buyer of the August 11 puts and a seller of the November upside calls.

I’m not all that positive on financials, says Patty Edwards of Storehouse. But anything Paulson says will probably take the sector down – not up.

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TAKE YOUR POSITION: CITIGROUP

Beleaguered banking giant Citigroup reports earnings on Friday with investors looking for signs that the bank’s troubles are beginning to abate.

Analysts on average expect Citigroup as a whole to post a second-quarter loss, according to Reuters Estimates.

What's the trade?

Citigroup is a tough trade. I’d get long around $3 but I’d only initiatve a small position, says Greg Troccoli

If I were to play Citi I do it with the upside calls, counsels Jared Levey, but I don’t like this stock.

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TAKE YOUR POSITION: GOOGLE

After the bell Thursday Google reports earnings and investors are eager to hear how the Internet search giant has navigated the economic turbulence. Considering Google shares have jumped over 20% in the last quarter how should you position yourself into earnings?

On average, analysts surveyed by Thomson Reuters expect Google to earn $5.06 per share on revenue of $4.05 billion

What’s the trade?

Charts suggest to me that the stock hits resistance around $447, says Patty Edwards. I like the stock on a long-term basis but I don’t see any reason to get in.

Google went to $250 to $450 in two months, adds Greg Troccoli. I wouldn’t touch it.

Personally, I’d play it with options, adds Jared Levy. I like Google although I see it pulling back just slightly. I’d go with the 400, 410 July put spread.

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TAKE YOUR POSITION: IBM

Also after the bell IBM reports earnings and investors are hoping to hear that IBM kept chugging along in the second quarter, wringing out better profits despite slumping sales, in an unsettled technology market that continues to see pockets of sustained weakness.

Analysts polled by Thomson Reuters expect IBM to earn $2.02 per share on $23.59 billion in sales. In the same quarter last year, IBM had profit of $1.97 per share and revenue of $26.82 billion.

What’s the trade?

I think IBM sets up well for a calendar spread, counsels Fast Money trader Pete Najarian. I’d buy the same strikes but buying in August and selling in July and taking advantage of the volatility.

I think this is a stock that has been chronically misunderstood, says Zach Karabell on Fast Money’s Wednesday show. It is so vital to the global business environment that as far as I’m concerned, it remains under-priced.

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TRADE TO GO - IntercontinentalExchange

Jared Levy says this stock looks attractive after a recent pull back, And he suggests trading it with August 75, 65 bull put spread.

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CALL THE CLOSE

Jared Levy: I’m a moderate buyer.
Brian Stuland: I’m a buyer. I’m looking for the market to trade up to 942 by the end of next week.
Greg Troccoli: After a 3-day run, I’d sell into the close.
Patty Edwards: I’m a seller


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Trader disclosure: On July 16th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour Owns (AAPL), (BAC), (FXI), (GE) Seygem Asset Management Owns (NOK) Calls; Finerman's Firm Owns (WMT), (MSFT), (NOK); Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM), (XRT)

Finerman's Firm And Finerman Own (BAC) Preferred Shares, Finerman Owns (BAC); Finerman's Firm And Finerman Own (WFC) Preferred Shares, Finerman's Firm Is Short (WFC); Pete Najarian Owns (YHOO) Call Spread; Pete Najarian Owns (INTC) Calls, (IBM) Calls; Jon Najarian Owns (AGU), (IPI); Terranova Owns (TER), (MSFT), (RIMM), (INTC), (SUN), (FTO); Terranova Owns (CCE) Calls

GE Is The Parent Company Of CNBC

Terranova Works For (VRTS)
Terranova Is Chief Alternatives Strategist Of Virtus Investment Partners, Ltd.
Terranova Is Co-Portfolio Manager Of The Virtus Diversifier PHOLIO
Virtus Diversifier PHOLIO Owns (IGE)
Virtus Diversifier PHOLIO Owns (DBC)
Virtus Diversifier PHOLIO Owns (DBV)
Virtus Investment Partners Owns More Than 1% Of (ABD)
Virtus Investment Partners Owns More Than 1% Of (CBL)
Virtus Investment Partners Owns More Than 1% Of (CAL)
Virtus Investment Partners Owns More Than 1% Of (CLB)
Virtus Investment Partners Owns More Than 1% Of (DLR)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (MEE)
Virtus Investment Partners Owns More Than 1% Of (DBC)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (DBA)
Virtus Investment Partners Owns More Than 1% Of St Mary Land & Exploration Co
Virtus Investment Partners Owns More Than 1% Of Seagate Tax Refund Rights
Virtus Investment Partners Owns More Than 1% Of (SKT)
Virtus Investment Partners Owns More Than 1% Of (TNB)
Virtus Investment Partners Owns More Than 1% Of (UA)
Virtus Investment Partners Owns More Than 1% Of (WBMD)

For Jared Levy:
Peak6 Investments Is Short And Has An Options Position In (CROX)
Peak6 Investments Is Short And Has An Options Position In (ESL)
Peak6 Investments Is Short And Has An Options Position In (FDX)
Peak6 Investments Is Short And Has An Options Position In (FTO)
Peak6 Investments Is Short And Has An Options Position In (FXI)
Peak6 Investments Is Short And Has An Options Position In (GE)
Peak6 Investments Is Short And Has An Options Position In (GILD)
Peak6 Investments Is Short And Has An Options Position In (GS)
Peak6 Investments Is Short And Has An Options Position In (HOT)
Peak6 Investments Is Short And Has An Options Position In (JPM)
Peak6 Investments Is Short And Has An Options Position In (KSU)
Peak6 Investments Is Short And Has An Options Position In (MOS)
Peak6 Investments Is Short And Has An Options Position In (NOK)
Peak6 Investments Is Short And Has An Options Position In (POT)
Peak6 Investments Is Short And Has An Options Position In (RIO)
Peak6 Investments Is Short And Has An Options Position In (SGP)
Peak6 Investments Is Short And Has An Options Position In (STLD)
Peak6 Investments Is Short And Has An Options Position In (XLF)
Peak6 Investments Is Short And Has An Options Position In (XLNX)

For Peter Jacobs:
Jacobs Owns (GE)
Wells Fargo Investments And/Or Affiliates Owns 1% Or More Of (GE)
Wells Fargo Investments And/Or Affiliates Owns 1% Or More Of (ESL)
Wells Fargo Investments And/Or Affiliates Owns 1% Or More Of (KSU)
Wells Fargo Investments And/Or Affiliates Owns 1% Or More Of (MMM)
Jacobs Owns (SLE)
Wells Fargo Investments And/Or Affiliates Owns 1% Or More Of (VWO)

CNBC.com with wires

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BAC
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C
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CIT
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IBM
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ICE
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GOOGL
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