Bullish on Bank of America (BAC)

Bet against the crowd by selling in-the-money puts on BAC

   

Bank of America (NYSE:BAC) was in the news this morning due to a $1.7 billion settlement – part of a stream of $45 billion in settlements the bank has had to make in the last three years, many related to its acquisition of Countrywide Mortgage.

I believe this news is a signal to be bullish on BAC.

I like two banks – Goldman Sachs (NYSE:GS) and BAC.  Goldman continues to employ the smartest guys in the classroom – the girls and boys who sat in either the front row or the last row. Bank of America’s problems come from things we know about – these kinds of settlements – not mysterious assets lingering on their balance sheet. They are the largest retail bank in the country – I don’t care if JPMorgan (NYSE:JPM) has more assets; Bank of America has my money. They have great customer service and a great website. And while earnings were very soft in Q1, they have a lot of presence in part of the country only just now recovering from the Great Recession.

What to do if you agree with my bullishness? Sell some puts. In the money puts!

The stock to my mind, is cheapo right here – I believe it will be worth around $22 a share in the next one to three years. Buying it at $13 is a good thing. So think about selling $13 puts and use the cash you generate to average down or subscribe to one of my services – or do both.

If you sell a May $13 put you will generate $22 a contract, a June $13 put will generate $50 a contract with the stock currently at $12.85. That is a lot of cash to bring your costs down or generate some disposable income. If you are put the stock in June, your cost basis is $2.50, a steal. If you are not put the stock – it goes up – you net a return of 3.84% in six weeks or so, an annualized return of more than 30%.

 

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