This quarter has been an especially good one for Bank of America Corporation (NYSE:BAC). It’s been so good, in fact, that CEO Brian Moynihan announced the company will be paying employees a special bonus for the third straight year. Employees earning less than $100,000 per year will get a $1,000 check. Those earning more than $100,000 will get company stock.
Well, we were feeling a little left out, so we decided to get our own “bonus” from BAC in the form of a put-write premium.
Earnings Season has Been Good for Financial Stocks
Since the big banks started reporting earnings in October, the financial sector, as represented by the Financial Select Sector SPDR Fund (NYSEARCA:XLF), has been doing well. In the chart below, you can see that XLF has been steadily climbing, and now it has set a new 52-week high.
Daily Chart of Financial Select Sector SPDR Fund (XLF) — Chart Source: TradingView
Across the market, the big banks have reported strong earnings. When BAC reported in October, it announced that it had beaten both earnings per share (EPS) and revenue expectations — coming in at $0.56 and $22.8 billion respectively.
This bullish run has been driven in large part by the company’s strong net-interest-margin revenues and its falling credit-card charge-off rates. The Federal Reserve has helped with net-interest-margin revenues by lowering interest rates. The strong U.S. economy has helped with credit-card charge-offs by giving consumers enough money and stability to pay their credit card bills.
BAC Broke Above its Multiyear High
BAC broke above shorter-term resistance at $31 after the company reported stellar earnings in October. But it didn’t stop there. The stock kept moving higher, breaking above longer-term resistance at $32 — the high the stock reached in August 2018. Ultimately, BAC finally broke above $33.05, the multiyear high it established on March 12, 2018.
Daily Chart of Bank of America Corporation (BAC) — Chart Source: TradingView
We think the former resistance level at $32 will act as support going forward, making it a perfect strike price for a put write.
As always, when picking an expiration date, make sure you balance risk and reward. You want to pick options that offer a good premium, but you don’t want to be in the trade for too long. The longer you are in a trade, the more time there is for the underlying stock to move against you.
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.