EOT Trade Alert – December 10, 2010
December 10, 2010
Trade Alert:
Buy BAC May 2011 $13 Calls at $1.15 or better
Company Background:
Bank of America (BAC) shouldn’t need much of an introduction. They’re one of the world’s largest financial institutions. They offer banking, investing, asset management, and other financial and risk management products and services.
Short-Term Catalyst:
Financial companies have been out of favor with investors since April. In fact, BAC’s stock has been going down while the S&P 500 rallied 18% since the beginning of September.
But over the last two weeks, financial stocks have turned the corner. They’re actually leading the markets higher!
Why the sudden change?
Simply put, investor sentiment toward financials is turning bullish. And for good reason.
The bottom line is… the current economic environment is great for banks.
Low interest rates and the Fed’s easy money policies are allowing BAC to print money. And with unemployment expected to stay elevated for quite some time, the Fed’s unlikely to change.
I’m expecting this to supercharge BAC’s earnings over the next few quarters.
But that’s not all. BAC is trading at a big discount to other major banks. As earnings accelerate and their valuation comes back in line with other major banks, their stock could easily hit $20.
On a technical basis, BAC’s chart looks great too.
It put in a double bottom in October and November. And, it broke through resistance of the downtrend line in the last few days. This is a bullish setup that could lead to BAC moving higher in a hurry.
Not to mention, these options look undervalued as well, so we’re getting in at a great price!
Let’s grab call options on BAC now to profit from the bullish momentum.
Trade Details:
| Underlying Stock Symbol: | BAC |
| Current Bid-Ask Price: | $1.05 – $1.06 |
| Option “Buy Up To” Price: | $1.15 |
| Break-Even On Stock At Expiration: | $14.15 |
| Maximum Risk Per Contract: | $115 |
Exit Strategy:
BAC is trading at $12.63 per share. Resistance levels will be at $14 and again at $17. Remember, we want this stock to move higher. Support levels will be at $11 and $10. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.
Chart:
Category: EOT Trade Alert
