If you’re a bit concerned about Bank of America Corp (NYSE:BAC) these days, you’re not alone. But that doesn’t preclude positioning smartly with a low and limited-risk, moderately bullish spread in Bank of America stock courtesy of its options market.
Let me explain.
Up, down, up, down and all around. Given today’s heightened market volatility, it may not still be a ‘blue skies ahead’ environment for Bank of America stock as some presciently predicted in early 2018. That’s easy enough to appreciate with the crazy price gyrations in BAC shares the past couple months.
Yet despite others grumbling in days past BAC shares were historically expensive and now ‘maybe’ being proved right for a second time; the financial giant does have its share of provisions that support what others are currently selling.
Bottom-line and top-line for that matter, from lower corporate tax rates, wider margin spreads and the potential for increased loan activity tied to economic growth, there’s a lot for investors to consider as net positives for BAC.
Throw in an aggressive share repurchase program and the fact the company holds an enviable position in the hot blockchain market, and there is a lot to like about Bank of America stock’s prospects off the price chart.
BAC Stock Weekly Chart
I’ve said it before and I’ll say it again, albeit at lower prices in Bank of America stock — compared to most stocks these days, Bank of America looks reasonably attractive.
On the price chart, the difference today as opposed to our March 1 analysis is BAC’s bullish momentum has gone ‘poof!’ But that’s not necessarily a bad thing.
Bottom-line, a previously very constructive-looking weekly chart remains intact. That of course is a good technical support to have in place. And when combined with a newly formed high-level double bottom pattern test of the 38% retracement level from its January 2017 bottom, Bank of America stock is offering another opportunity to get long.
Bank of America Moderately Bullish Long Call Butterfly
While I see the described technical prospects in Bank of America stock as bullish, the real value to be exploited is buying BAC via a lower-risk and well-placed position courtesy of Bank of America’s options market.
Specifically and with shares of BAC at $29.99, a long May $31 / $33 / $35 call butterfly combination for 40 cents is favored with a max payout of $1.60 if shares land at $33 on expiration.
The real cost with this strategy isn’t the obvious low price of entry of just more than 1% BAC stock risk. Rather, the required reckoning is a profit range in-between $31.40 to $34.60 is just that. It’s a defined area for the trader to make ‘bank’ on the strategy. Above and below the outer strikes and the entire 40 cents will be forfeited at expiration. Nevertheless and in our view, with no additional downside exposure and profits on a rally as much as 15.50% in Bank of America stock, that’s my kind of buy recommendation.
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.
