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Tapping BofA’s Upside Potential

After JPM and WFC positive earnings, here's an option play on BAC


Well, we’re in the midst of earnings season, and so far we haven’t seen any announcements that have been too disruptive. We’re seeing a continuation of the trend that started last quarter of lower top-line revenues accompanied by better-than-expected bottom-line earnings, but Wall Street hasn’t made a bearish reaction to that yet.

Wells Fargo (NYSE:WFC) and JPMorgan (NYSE:JPM) were two banks that reported positive earnings last week, and we’re looking to take advantage of it with a trade in Bank of America (NYSE:BAC). BAC will be a beneficiary of the increased confidence in banks, and since the company releases earnings on Oct. 17, there’s potential for additional upside.

Options Recommendation: Buy to open the BAC Nov 9 Calls for 60 cents or less.

We traded BAC recently, and our analysis at the time was that it seemed unlikely for the stock to break $10 per share on a rally. That still seems the most likely upper target, but on a low-price stock like this, that’s 7% from where prices are now, leaving plenty of upside for a potential trade.

The 9 calls are in the money, and we typically don’t trade in-the-money options. However, the low price of BAC and the fact that its options are in dollar increments makes the in-the-money option much more attractive than the $10 out-of-the-money strike. In both cases, there’s extrinsic (time) value, but we expect the 9 calls to benefit more on a smaller rally because they have some intrinsic value already.

John Jagerson and S. Wade Hansen are co-founders of, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news.

Article printed from InvestorPlace Media,

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