Bank of America Corp (BAC): The Perfect Stock for Writing Options

January 13, 2016 by

bank of america1Rick Pendergraft:  Normally in this space I focus on a stock or ETF that looks primed for a big move up or down, but that isn’t the case today. Today’s stock moves a little, but it has been range-bound for a year and a half. However, the stock is the perfect candidate for writing options to make money.

I am talking about financial services giant Bank of America (NYSE:BAC). If we look at the daily chart, you see that I have drawn lines at $15 and $18. These levels have kept the stock in a range for the last year and a half, and they present trading opportunities on the bullish and bearish side.

Simply buy the stock when it is down under $15.25 and the sell it when it approaches $18. You can also sell it short when it approaches $18 and then cover when it gets down near $15. A move from $15 to $18 presents a 20% gain while a short from $18 down to $15 presents a 16.7% on the short sale.

BAC Daily Wyatt

If we take a step back and look at the weekly chart, we see just how long and how strong the range has been. With the exception of a four to five week span in the second quarter of 2014, Bank of America has been locked between $15 and $18 essentially since November 2013.

BAC Weekly Wyatt

While the short-term trading of Bank of America presents decent risk/reward possibilities, another way to play the stock is by writing options. When I say write the options, I am talking about selling puts at the $15 strike and selling calls at the $18 level.

At this time, with the stock being down near the bottom of the range, the February 15 strike puts that expire on Feb. 19 have a bid of $0.92.

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