Bank of America Corp (NYSE:BAC) is in the headline hot seat yet again. However, the larger body of evidence suggests Bank of America stock has plenty of support, both off and on the price chart, to receive the proverbial “get out of jail free card” with investors.
BAC stock received some unwanted, but quite common and unfortunate attention on Wednesday as the firing of two employees tied to the company’s ongoing investigation of sexual misconduct at its prime brokerage unit deepened. Yet, as despicable as the allegations appear and although a day of reckoning could be on the horizon, for investing purposes, shares of BAC are a less risky proposition.
Sure, some might argue Bank of America stock is historically expensive at current prices. InvestorPlace’s Bret Kenwell eloquently discussed that concern exactly one month ago, with shares squarely sitting where they are today.
But the bottom-line is that I still maintain a buy recommendation because I embrace a positive BAC narrative that includes continued macro-economic and interest rate support, hot blockchain provisions and a “cooperative” price chart.
Bank of America Stock Weekly Chart
Compared to too many other price charts these days, Bank of America stock looks reasonably attractive. I personally see BAC shares as a technical-based value bet with the support of modest bullish momentum.
The optimistic view is backed by a couple important factors. First, there’s BAC’s lengthy, three-year long corrective base, which finally resulted in a breakout in late 2016.
Secondly, a smaller, but still substantial base followed by a base-on-base pattern has propelled Bank of America stock higher, while keeping the overall base count modest and not in a state of technical exhaustion.
Lastly with Bank of America stock’s returns good but far from extreme and shares still approximately 70% below their highs set more than a decade ago, continued upside in BAC looks promising.
BAC Long Call Butterfly
Given a bullish stance on Bank of America, one strategy that looks interesting right now is buying a moderately bullish long call butterfly. Specifically — with shares of BAC at $32.10 — the April $33 / $35 / $37 call combination for 38 cents is favored.
The real cost with this strategy isn’t the obvious low price of entry, which amounts to just over 1% of stock risk. Rather, this trader needs to accept that profits are contained to a profit range above the market. And if Bank of America stock becomes too bullish in its price behavior, the debit could be at risk.
Despite this spread’s limitations, with the chance for capital gains from $33.39 to $36.61, there is a max payout of $1.62 at $35. If BAC is at the sold call strike at expiration and a ‘moderately’ bullish profit range, allowing for an additional 15.6% of upside before the small debit is at risk, a buy recommendation is definitely in order.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
