Earnings season hits full swing next week, and Bank of America Corp (NYSE:BAC) will help kick things off bright and early on Monday morning. BAC stock has had quite a bit of trouble over the past several weeks, with the Brexit taking a severe toll on the banking giant. But with the shares looking to recover those losses, now might be the time to get bullish on BofA.
BAC stock already has plenty of bullish drivers. The company passed its Fed stress tests with flying colors, and boosted both its dividend and stock buyback plan. What’s more, last week’s blowout June jobs report has Fed watchers talking rate hike again — albeit down the road, but it’s an improvement over the silence that followed the Brexit.
As a result, Monday’s earnings report could be the catalyst that seals the deal for Bank of America bulls.
Bank of America: What Does Wall Street Think?
Diving into the numbers, Wall Street is expecting Bank of America to earn 33 cents per share in the second quarter, with revenue expected to dip 8.2% to $20.52 billion. That said, many analysts have set an even higher target, with EarningsWhisper.com reporting a whisper number of 38 cents per share for Bank of America.
A long-term bullish outlook is nothing new for BAC stock, and it shows in Bank of America’s sentiment backdrop from the brokerage community. For instance, according to Thomson/First Call data, BAC has earned 28 buy ratings, compared to just six holds and no sell ratings. Furthermore, the 12-month price target of $17.23 represents a hefty premium of about 30.4% to Monday’s close.
In the options pits, BAC stock options traders are mixed on the equity’s prospects. Currently, the July/August put/call open interest ratio rests at a bearish-leaning reading of 0.81, with calls and puts in near parity. However, this ratio plunges to 0.4 for the weekly July 22 series, as calls more than double puts among options most affected by Bank of America’s earnings report.
Click to Enlarge Overall, weekly July 22 series implieds are pricing in a potentially hefty post-earnings move of about 6.72% for BAC stock. This places the upper bound at $14.14, while the lower bound lies at $12.36.
Technically, a rally past resistance at $14 would be huge for BAC stock, placing the shares north of their 50-day moving average for the first time in nearly a month. However, a dip to $12.36 would breach support at $12.50, potentially sending Bank of America shares back to test the $12 region.
2 Trades for BAC Stock
Call Spread: Bank of America wants to rally. The shares have made two solid attempts in the past two weeks, only to be thwarted by their 20-day moving average. That trendline is now in the rear-view mirror, and BAC stock is free to run into earnings, which could drive the shares even higher.
Those looking to bet on a breakout for BAC might want to consider an Aug $14/$15 bull call spread.
At last check, this spread was offered at 14 cents, or $14 per pair of contracts. Breakeven lies at $14.14, while a maximum profit of 86 cents, or $86 per pair of contracts, is possible if BAC closes at or above $15 when August options expire.
Put Sell: Alternately, if you’re looking for a more conservative play on BAC stock, a weekly July 22 series $12 put sell has a high probability of finishing out of the money. At last check, this option was bid at 5 cents, or $5 per contract.
As usual with a put sell, you keep the premium as long as BofA closes above $12 when July options expire at the end of next week. On the downside, if BAC trades below $12 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $12 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
