Shares of megabank Bank of America (BAC) have been trending down in recent months, and shares just went negative over the past year. One trader sees the possibility for a rebound in the next few weeks.
That’s based on the May 27 $50 calls. With 42 days until expiration, 10,023 contracts traded compared to a prior open interest of 278, for a 36-fold rise in volume on the trade. The buyer of the calls paid $1.34 to get into the trade.
Shares last traded for just under $39, so they would need to rise about 3 percent for the option to move in-the-money. And it’s a reasonable price based on the company’s 52-week high of just over $50 per share.
While bank stocks have been poor performers in recent months on rising interest rate fears and last week’s big earnings dates for the banks, Bank of America has been a strong performer. Earnings rose 28 percent in the last year, and revenue is up nearly 13 percent. Plus, the bank sports a massive 34 percent profit margin.
Action to take: BAC is one of the better-managed megabanks, and shares are going for about 12 times forward earnings. They’ll likely trend higher from here. Investors can lock in a recently-raised dividend for a starting yield of 2.1 percent.
For traders, the May calls look attractive for a rally in the next few weeks. It’s a near-the-money trade, so a small move can lead to big percentage gains on the low-priced option. Traders should look for a spike higher in shares in the coming days and take a quick gain.
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.