Bank of America Corp (NYSE:BAC) stockholders entered 2016 hoping for several interest-rate hikes from the Federal Reserve and, as a result, a strengthening bottom line for the bank’s investment business.
So far, the Fed’s hands have been tied by poor economic growth, but this morning’s better-than-expected July jobs data offers up some hope that the situation will turn around sooner rather than later for BAC stock.
Briefly checking with this morning’s jobs data, the government reported that the U.S. economy added 255,000 jobs in July, blowing past the Street’s estimates for 185,000 new jobs.
Additionally, June jobs data was revised higher to 292,000 new jobs from of 287,000, and May’s gain was more than doubled to 24,000 from 11,000.
Click to Enlarge BAC stock traders are taking the news in stride, sending the stock more than 3% higher. Technically, BAC is down more than 12% year-to-date, but the shares have made a comeback in the past month.
In fact, BAC stock is up nearly 21% since bottoming near $12 on June 28, with the shares eclipsing all of their major short-term moving averages, save their 200-day trendline.
That trendline may fall today, however, as BAC makes a run at $15 following this morning’s jobs data.
A breakout here would go a long way toward validating BAC stock’s bullish sentiment backdrop. For instance, Thomson/First Call data indicates that 27 of the 34 analysts following the shares rate them a “buy” or better. Furthermore, the 12-month price target of $17.14 represents a healthy premium of about 18.4% to Thursday’s close.
Short-term options traders are also quite bullish on BAC stock — despite recent block trading activity on the shares. Currently, the August/September put/call open interest ratio rests at 0.75 — a reading that is down from near 0.88 last week. Looking out to the September series, this ratio falls sharply to 0.53, with calls nearly doubling puts among options set to expire within the next two months.
As for the September series, implieds are pricing in a potential move of about 3.7% for BAC stock. This places the upper bound at $15.04, while the lower bound lies at $13.96. The $14 and $15 levels are key areas of technical support and resistance for BAC, and a breach of either one could result in a greater-than-expected move for the shares. And with this morning’s positive jobs data pushing BAC past its 200-day moving average, the bias appears to be to the upside.
2 Trades for BAC Stock
Call Spread: Those traders looking to side with the bulls might want to consider a Sept $15/$16 bull call spread. At last check, this spread was offered at 30 cents, or $30 per pair of contracts. Breakeven lies at $15.30, while a maximum profit of 70 cents, or $70 per pair of contracts, is possible if BAC closes at or above $16 when September options expire.
Put Sell: Alternately, if this morning’s jobs data isn’t convincing enough, or if you’ve got reservations about BAC’s ability to breakout above $15, you might want to consider an August $13.50 put sell. At last check, the August $13.50 put was bid at five cents, or $5 per contract.
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The upside to this put sell strategy is that you keep the premium as long as BAC stock closes above $13.50 when these options expire.
The downside is that should BAC trade below $13.50 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $13.50 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
