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This morning, we’re recommending a bullish trade on Bank of America (NYSE:BAC). We’ve successfully sold puts on BAC before, and with the recent tailwind from mergers an acquisitions activity in the banking sector, we think it is a good time to do it again.
Strong Earnings Earlier This Year
BAC had been consolidating in a range between support at ~$28 and resistance at ~$29.70 since the company surprised traders, who sent the stock jumping higher, with its better-than-expected earnings announcement on Jan. 16.
The company beat revenue expectations by $390 million and earnings expectations by $0.07 per share — coming in at $22.74 billion and $0.70 per share, respectively — thanks to aggressive cost control measures and strong consumer banking growth.
Management threw more bullish fuel on the fire and helped the stock confirm its support level on Feb. 8 when it announced it would be adding $2.5 billion to the company’s $20 billion share buyback program. That money will be used by the end of June.
These announcements — coupled with a bullish equity environment on Wall Street and a strong U.S. economy — helped BAC shrug off concerns that the company, along with all other major financial institutions, could be negatively impacted by falling yields and a tightening net interest margin.
We took profits and exited our last bullish put write on BAC because of the volatility we were experiencing on Wall Street during the past two weeks. We were concerned BAC may drop back down below our strike price before the week was over, and taking some profits off the table — as opposed to taking on the risk of being put shares of BAC — seemed preferable.
Now, BAC option premium is inflated in the run up to the Federal Reserve’s Federal Open Market Committee (FOMC) meeting, and that makes it a good time to collect extra income.
Rising Above $29.70
If we look at BAC’s daily chart, we see that the stock broke above resistance at around the $29.70 level. This is a positive sign for a stock we already like from a fundamental perspective.
Daily Chart of Bank of America (BAC) — Chart Source: TradingView
As we mentioned above, option prices are currently a little inflated but should come back down again after the Fed’s FOMC report on Wednesday afternoon. Inflated premiums are good for us as option sellers, and added to the momentum from yesterday’s breakout, we believe this is a good week to reopen some exposure to the stock.
To find out what BAC puts we’re selling — and to get access to our full portfolio of income-generating trades — consider signing up for risk-free trial subscription to 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.
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