Sector rotation was the name of the game Wednesday. While oil stocks returned to Earth, financials were flying high. Perhaps the biggest bank stock reveling in the gains is Bank of America Corp (NYSE:BAC), which has already climbed 2.20% yesterday. With the BAC stock uptrend now reaffirmed, bull trades are worth a shot.
The timing of today’s jump was fortuitous. Recent selling pressures were threatening to reverse BofA’s uptrend. Over the past six trading sessions, BAC shed 5% of value falling all the way to the 50-day moving average.
Chart watchers often view a break of this indicator as a negative omen signaling a trend reversal. Remaining above the 50-day keeps a stock in the good graces of bulls everywhere.
The high volume accompanying BAC’s decline was also worrisome. Remember, high volume down days suggest distribution or widespread selling by institutions which often weighs on a stock for days to come. If yesterday’s sharp rebound sticks, it will mostly negate the damage dealt by the distribution.
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If this is the beginning of BofA’s next advance, then there’s no time like the present to deploy bullish trades.
BAC Stock Trade
With the return of volatility, the premium in BAC stock options is getting juiced once more. And that’s increasing the appeal of short premium strategies like the naked put.
The stock’s cheap price tag ($26) will keep the margin cost for the trade minimal which creates a more attractive return on investment.
Sell the Dec $26 put for 43 cents. If the stock remains above $26 for the next month, the put will expire worthless allowing you to pocket the max reward of 43 cents.
That may not sound like a lot, but the initial cost of the trade is only $455, so we’re looking at a potential 9.5% return on investment. That’s decent cash flow for one month’s worth of work.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
