Wall Street megabank Bank of America (BAC) is up 40% over the past year, far beating the overall market. One trader sees the stock trending even higher in the weeks ahead.
That’s based on the February 7 $50 calls. With 22 days until expiration, 26,287 contracts traded compared to a prior open interest of 123, for a massive 214-fold rise in volume on the trade. The buyer of the calls paid $0.20 to make the bullish bet.
Bank of America shares recently traded for about $46, so shares would need to rally by about $4, or about 9%, for the option to move in-the-money. It would also mean shares moving past their 52-week high of $48.08.
The bank has struggled in the past year operationally. Revenues decreased about 1% and earnings declined by 12%. Interest rates have held higher than expected, which may weigh on the bank’s profitability.
Even with those headwinds, BAC trades at about 12 times forward earnings.
Action to take: With shares still in an uptrend, momentum investors may like the company here. Bank of America also pays a 2.3% dividend at current prices, and has a history of increasing its payout over time.
For traders, the February 7 $50 calls are aggressive and unlikely to move in-the-money. But given their low price, they could see triple-digit returns on a move higher 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 company mentioned in this article.
