Shares of money center Bank of America (BAC) are down about 25 percent in the past year, underperforming the S&P 500 by about 9 points. One trader sees a rebound in the first half of 2023.
That’s based on the June $49 calls. With 188 days until expiration, 3,021 contracts traded compared to a prior open interest of 147, for a 21-fold rise in volume on the trade. The buyer of the calls paid $0.11 to make the bullish bet.
The stock recently traded for about $33, so shares would need to rise $17, or 48 percent, for the option to move in-the-money. With a 52-week high of $50 per share, such a move is possible, although it would be a stretch before these options expire.
While revenue has been flat in the past year, earnings are down about 8 percent. Plus, shares trade at about 10 times forward earnings, a reasonable price for a big money-center bank.
Action to take: Investors may like shares here for a rebound in the coming months. Shares yield about 2.7 percent at current prices, a reasonable amount for investors looking to get paid to wait for a move higher.
For traders, the June calls are attractive in the sense that they’re cheap and can deliver triple-digit returns on a jump higher in shares.
Traders looking for a lower but likelier return might consider the June $40 calls, last going for about $0.80. While more expensive, they’re more likely to move in-the-money on a rally in shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.