Bank of America Benefits from Fed Action

Bank of America (NYSE:BAC) has been on a bullish tear since last November when Treasury yields started to rise and the yield curve started to steepen.

This change in yield spreads has been good for banks who borrow money at lower, shorter-term interest rates and lend money at higher, longer-term interest rates.

The difference between these rates is called a bank’s net-interest margin. The wider the margin, the more revenue the bank earns.

We expect BAC to continue rising as these spreads continue widening.

BAC also got a nice bump last Thursday when the Fed said banks could start returning profits to shareholders by issuing dividends and buying back stock again after June 30th.

The Fed had previously restricted banks from doing so to ensure stability in the financial markets.

To take advantage of widening spreads and the Fed’s announcement, we recommend selling to open a new put write on BAC.

We chose our strike price because it gives us a little wiggle room below the latest support level the stock established during its most recent pullback.

And we chose a mid-April expiration because it comes one day after BAC is scheduled to release its quarterly earnings, which gives us a juicier premium.

On the date of publication, John Jagerson & Wade Hansen did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

John Jagerson & Wade Hansen are just two guys with a passion for helping investors gain confidence — and make bigger profits with options. In just 15 months, John & Wade achieved an amazing feat: 100 straight winners — making money on every single trade. If that sounds like a good strategy, go here to find out how they did it.


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