How to Trade Bank of America Corp (BAC) Stock After Earnings

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Dow Jones Industrial Average constituent and the country’s second largest financial institution, Bank of America Corp (NYSE:BAC) reports earnings Tuesday morning.

How to Trade Bank of America Corp (BAC) Stock Earnings
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Let’s take a look at recent announcements for BAC stock, pricing within BAC’s options market and come up with a better understanding or clues as to what traders can, or think they can, expect from Bank of America.

BAC Stock Earnings Picture

Ahead of Bank of America’s Tuesday morning second-quarter earnings release, analysts are forecasting profits of 44 cents per share. Range estimates are from 40 cents to 50 cents. Street expectations for BofA imply an increase of 22% in earnings growth over last year’s same-quarter result of 36 cents and a sequential increase of 6% from Q1’s 41 cents.

Revenues are estimated to grow by 7.8% to $22 billion compared to 2016’s sales of $20.4 billion. Sequentially, BAC is forecast to contract modestly (by less than 1%) from last quarter’s rake of $22.2 billion.

BAC Stock Ratings

Analysts are fairly upbeat on BAC stock, with 17 buys, 5 outperforms, 8 holds and one “sell” recommendation. Moreover, the median price target rests 11% above at $27 with a range low of $20 and high estimate of $32.

On the qualitative periphery, Citigroup Inc (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) all issued results this past Friday which failed, initially at least, to impress investors despite uniform earnings beats. Specific to BAC stock, Miller Tabak noted support from the banks stress test results and shareholder-friendly activities of late. Shares of BofA were however noted as needing some help technically before becoming more bullish.

BAC Stock Short-Term Trading Record

BAC has established a consistent pattern of beating Street profit views by topping estimates in 10 of its previous 12 reports. Investor reaction responsible for the bottom line on the BAC stock chart has proven a bit more modest with moderate gains in four of the previous six announcements immediately following earnings.

Working backward, shares of BAC have moved -0.44%, 0.39%, 0.31%, 3.32%, 2.57% and -1.54% on a close-to-close basis. The net reaction has produced an average gain of 0.76% in the first full session of trading.

Variability of 1.83% based on a one standard deviation reading yields an estimated range of -1.05% to 2.60%.

BAC’s seven-day stock performance has proven a bit more bullish, albeit not without volatility. The average gain has been 1.94%. At the same time, a fairly high standard deviation of 5.82% sets up a fairly wide expected range of -3.88% to 7.76%.

BAC Stock Daily Chart


Click to Enlarge
Source: Charts by TradingView

Most recently, and following the successful breaking of a large bearish head and shoulders pattern, BAC stock has worked its way lower and into a position of testing prior resistance for support.

The good news for bulls is that BAC has now put together a hammer-looking doji candle off the 50% Fibonacci level.

In conjunction with having broken the topping formation the direction edge is in the bull’s hands. But and in keeping with Miller Tabak, this strategist is inclined to leave any potential positioning decisions in shares of BofA until after the earnings dust has settled.

BAC Stock Options Pricing

Behind the scenes, the mostly unimpressive underlying volatility in BAC of the past several months has manifested itself in implied volatility hoovering closer to the low end of its trading range and one more closely associated with lethargy and complacency than of risk awareness.

Bank of America’s at-the-money 21 July $24 straddle market points to a 68% chance BAC will remain within an approximate price range of $23.32 to $25.10 into this coming Friday’s expiration and thus far. That pricing appears fairly benign and ordinary in relation to recent earnings events.

The math behind this calculation is based on implied volatility of 26.5% with seven calendar days remaining based on Friday’s close. The weeklys contract is the purest play on the BAC stock earnings event, as the opportunity for external events to influence premiums is minimized.

Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/how-to-trade-bank-of-america-bac-stock-after-earnings/.

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