Despite finishing on a strong note last year, Bank of America Corp (NYSE:$BAC) has little to show for all its efforts.
Yes, BAC stock is up 12.5% year to date — but the stock is down around 2.5% from its March high of $25. Further, BAC shares have spent the majority of 2017 bouncing between $22.50 and resistance at $25.
To put it more bluntly, BAC stock has seen its fair share of price action but has gone practically nowhere since March. Currently, the shares are closing in on overbought territory, as it once again approaches resistance at $25.
Perhaps the main enemy of BAC stock in the forthcoming future is President Donald Trump’s policy goals for the financial sector. Breadth is breaking down quickly in the market, with additional fears of a potential market top rise.
Earlier this month, BoA had speculated third-quarter trading revenue to fall by 20%, which will undoubtedly cast a dire impact on Oct 13’s quarterly earnings report. In total, though, BoA is expected to see a profit of 47 cents per share, up from 41 cents in the same quarter last year. Revenue is expected to remain stagnant at $22.07 billion.
Despite the gloom stats, options traders are optimistic about BAC. Currently, the October put/call open interest ratio rests at a bullish reading of 0.72. But let’s look at the following scenario. If the spread is offered at 18 cents or $18 per pair of contracts, and breakeven lies at $23.82 — a potential 355% return is possible if BAC stock closes at or below $23 when the October options expire.
But, if BAC rallies above $26.50 prior to expiration, as an investor, you could be forced to provide 100 shares at current market value for each call sold, which could be extremely costly if you do not have enough stock to cover the call.
Either way, betting against BoA seems like the risk-minimizing choice.
Featured Image: depositphotos/frank11
