Trade of the Day: Bank of America (BAC)

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Financial stocks have been a mixed bag, but there are some opportunities to highlight in Goldman Sachs (GS) and Bank of America (BAC).

Goldman Sachs  made a backtest toward its 200-day moving average following last week’s drop to $196.58. Shares need to rally another $8 and clear $210 and a downward-sloping 50-day moving average before the technical picture improves.

bank of america

Short-term bullish traders could target the GS August 205 calls (GS150821C00205000,), which are trading around $0.85, for a run past $205 this week. But these options expire on Friday, so they are risky.

Longer-term bearish traders could target the GS September 190 puts (GS150918P00190000) on a drop or close below $195. If $210 holds as resistance on a rebound rally, these options will get cheaper, so traders could watch the GS September 195 puts (GS150918P00195000), as well.

Bank of America (BAC) might be a more attractive play, as it is showing strength. Bank of American shares held on last week’s backtest to $17, with the 50-day moving average getting stretched and holding into Friday’s close.

“Golden crosses” formed on Bank of America’s chart in mid-June and late July, with the 50-day moving average and 100-day moving average crossing above the 200-day moving average.

There are “cheaper” ways to play Bank of America than there are to trade Goldman Sachs, which is why BAC is high on my list week. Call options give traders numerous setups to play a possible run for Bank of America to $18-$18.50 over the near term, and possibly $20 by year-end.

Bullish traders could target the BAC September 18 calls (BAC150918C00018000), currently trading at a low $0.30 per contract, for a possible run to higher highs and fresh 52-week peaks north of $18.48. This option traded nearly 12,000 contracts on Friday.

If Bank of America shares can reach $18.55 to $18.60 by mid-September, the aforementioned call options will easily double from current levels, as they would be $0.55-$0.60 in the money. If BAC shares tap $19 by this time frame, the options will be worth $1, and the return would be more than 200%.

And, P.S., the KB Home (KBH) calls that I recommended last week are up nicely. My exit target remains $1.05, and I now have a stop loss set to exit if the calls trade at or below $0.65.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/08/bankofamerica-bac/.

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