To receive further updates on this Bank of America (NYSE:BAC) trade as well as an alert when it’s time to take profits, sign up for a risk-free trial of SlingShot Trader today.
Today, we’re opening a new bullish trade on Bank of America (BAC). As virtually everyone on Wall Street expected, the Federal Open Market Committee (FOMC) raised short-term interest rates last Wednesday for only the second time since slashing rates to near zero in 2008. However, the FOMC also signaled that it is looking to raise rates three more times during 2017. This signal sent bond yields soaring and the U.S. Treasury yield curve into steeper and steeper territory, which is fantastic news for financial institutions like BAC.
The steeper the yield curve gets, the wider BAC’s net interest margin is likely to become, which will drive higher revenues for the company. All of this combined with the still sky-high expectations traders have for financial institutions under a Trump presidency — based on an assumed reversal of the Dodd-Frank Act, a change to the corporate and individual tax code and more trading and loan activity driven by increased fiscal stimulus and economic growth — makes us excited to jump back into a bullish trade on BAC.
BAC has been steadily rising since the presidential election and, after a short one-week consolidation, the stock is indicating its bullish run is far from over. Often times stocks will make dramatic moves to the upside in three stages, and we believe BAC is about to enter its third stage. The $3 move from $17 to $20 was the first stage. After a short consolidation at $20, the next $3 move from $20 to $23 was the second stage. Now that the stock has consolidated just below $23, we expect the third stage to take the stock from $23 to $26.
We anticipate this move will occur before the company is scheduled to release its quarterly earnings on Jan. 13, which should enable us to take advantage of not only the positive stock movement, but also the increase in implied volatility in the run-up to the earnings announcement.
‘Buy to open’ the BAC February (2017) 24 Calls (BAC170217C00024000) for a maximum price of $0.95.
You can learn more about identifying price patterns and using them to project how far you think a stock is going to move in our Advanced Technical Analysis Program.
InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next SlingShot Trader trade and get 1 free month today by clicking here.
