Trade Alert - (BAC) February 19, 2021 - EXPIRATION AT MAX PROFIT

When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.

 

Trade Alert - (BAC) – EXPIRATION AT MAX PROFIT

EXPIRATION of the Bank of America (BAC) February 2021 $28-$30 in-the-money vertical Bull Call spread at $2.00

Closing Trade– NOT FOR NEW SUBSCRIBERS

2-19-2021

expiration date: February 19, 2021

Portfolio weighting: 10%

Number of Contracts = 57 contracts

This option call spread does not expire until the end of today. However, we are now a generous $4.26, or 14.20% above the upper $30 strike price.

Since we added this position, (BAC) has appreciated by $2.61. As a result, you get to take home $1,425 or 14.28% in 12 trading days as long as (BAC) does not fall by more than $4.26 by end of today.

You don’t have to do anything with this expiration.

Your broker (are they still called that?) will automatically use your long position to cover your short position, canceling out the total holdings.

The entire profit will be credited to your account on Monday morning February 22 and the margin freed up.

Some firms charge you a modest $10 or $15 fee for performing this service.

This was a very aggressive at-the-money trade with only 12 days to expiration.

However, bonds (TLT) have just hit a new low for the year and lower prices beckon. When bonds go down, banks can only go up as rising interest rates are hugely beneficial for their profits.

The House effort to fast-track a $1.9 trillion stimulus package may be part of this. All of this will have to be borrowed since the Biden administration has inherited record deficits.

The shortcoming in this trade was that we are buying AFTER the Volatility Index (VIX) cash from a sky-high $38 to only $23. But (VIX) tends to flatline for months after these big dives so a 12-day bet should be OK.

I believe that massive government borrowing and spending will drive US interest rates up through the roof and the value of the US dollar (UUP) down. Banks love high interest rates because they vastly improve profit margins.

Covid-19 is rapidly approaching its third peak. Total US deaths could exceed the 1919 Spanish Flu 625,000 peak by the time it is all over. We passed all WWII deaths sometime ago.

This was a bet that Bank of America (BAC) would not fall below $30 by the February 19 option expiration day in 12 trading days.

Here are the specific trades you need to close out this position:

EXPIRATION of 57 February 2021 (BAC) $28 calls at………….………$3.50

EXPIRATION of short 57 February 2021 (BAC) $30 calls at………....$1.50

Net Proceeds:………………...................……..…….………..………….….....$2.00

Profit: $2.00 - $1.75 = $0.25

(57 X 100 X $0.25) = $1,425 or 14.28% in 12 trading days.