The major money-center banks kicked earnings season off with a bang this quarter, and they have been flying high ever since. We’re looking to take advantage of this new-found bullishness with a trade on Bank of America (NYSE:BAC).
The great thing about big banks, like BAC, is they are diversified. They have their fingers in so many parts of the economy that they can usually offset soft quarters in some of their business units with strong quarters in other business units.
That’s exactly what happened with BAC this quarter, and that’s what makes it a great target for a put write.
Consumer Banking is BAC’s Savior
BAC beat revenue estimates by $70 million and earnings estimates by $0.05 per share — coming in at $22.8 billion and $0.56 per share, respectively.
The company was able to beat estimates thanks in large part to growth in consumer banking revenues and net interest income. In other words, the strong consumer economy in the United States and moves by the Federal Reserve to cut short-term rates have helped the bank boost revenues and profits.
Other banks, like Citigroup (NYSE:C) are in a similar situation.
The positive earnings beat has sent BAC soaring higher during the past few weeks.
Old Resistance and New Support
As you can see below, the stock has broken above longer-term resistance at around $31. We expect BAC to remain above this level in the near term.
Daily Chart of Bank of America (BAC) — Chart Source: TradingView
We expect the former resistance level to act as support for the stock — old resistance becomes new support — so $31 is a good strike price for a put write trade.
We recommend picking an expiration some time in November. Look for one that has plenty of liquidity — so you can exit the trade quickly if needed — and be sure it offers a decent premium.
To find out which BAC put writes we’re selling—and to get access to our full portfolio of income-generating trades—sign up for a risk-free trial of Strategic Trader today.
InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.