We have a short week – the markets are closed for Good Friday – is there a weekly trade that looks good? Yes – a somewhat unusual one at that, a weekly put you should consider selling even though it is in the money.
Bank of America (NYSE:BAC) came out of the recent Fed stress tests looking quite good. The company got permission to buy back five billion in shares – the stock popped and is now consolidating around the $12.50 level. Given that it was $5 less than two years ago, and $6.72 a year ago, it has been quite a run and people are taking profits. But that is slowing and there are a couple of things you can with BAC to generate some cash, now.
The March Week Five $12.50 put is in the money a few pennies and includes a seven or eight cent per share premium just for two days time. That does not sound like a lot but on an annualized basis that component of the premium produces an annualized return of 32% – and if you sell that out now and it expires worthless your annualized return is 56%. By annualized, I mean if you did the same trade fifty times a year.
Since I am a BAC bull (I own the shares) you can also go out and buy the shares and sell a weekly call. If you buy the shares around $12.45, and sell the March Week Five $12.50 call, you will get around eight cents. If they expire worthless, and you did that fifty times a year, you net that 32% return. And if you are nimble, and you roll calls forward when the stock climbs, you can do a lot better than 32%.
I believe BAC is the best of the banks and is good for $22 a share sometime in the next year or two. The best banking analysts alive at Meredith Whitney agree. You should too and whether you sell puts or buy the shares and sell calls, there is a lot of cash to be generated, a lot of profit to be made.
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