Trade Alert - (BAC) November 7, 2014
As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price.
Trade Alert - (BAC)
Buy the Bank of America (BAC) December, 2014 $15-$16 in-the-money vertical call spread at $0.92 or best
Opening Trade
11-7-2014
expiration date: December 19, 2014
Portfolio weighting: 10%
Number of Contracts 110 = contracts
In case you were not able to pick up the Bank of America (BAC) December, 2014 $15-$16 in-the-money vertical call spread on Tuesday, here is another chance to get it.
After the close yesterday, the bank announced that it was provisioning another $400 million for potential legal costs to stem from a Justice Department investigation into its foreign exchange trading practices seven years ago. The stock is trading down 1% to $17.19 in the premarket as I write this.
At best, this is a storm in a teacup. A cost of $400 million against the $17 billion in settlements it has already paid this year is mere sofa change.
What?s more, Citibank (C) announced a similar provisioning last week. The stock dove 2% and then recovered almost immediately to a new high for the year.
I think we need to say thank you to the Justice Department and use this dip to pick up more of this fantastic stock. I think it will be trading at $30 in a couple of years.
You can buy this call spread anywhere within $0.90-$0.94 and have a reasonable expectation of making money on this trade.
If you are unable to do options buy the stock at market price.
So I am going to take advantage of the dip to put on a very low risk position in the Bank of America (BAC) December, 2014 $15-$16 in-the-money vertical call spread at $0.92 or best.
Warning! With a low price and a large number of contracts, this trade is particularly sensitive to your commission rate. So if you are overpaying your broker, now is the time to have a conversation with them and negotiate your rates down. It?s easier than you think, especially on spread trades.
The $15 and $16 strikes also make this a nice set up in the options. I expect markets to rally into yearend, for financials to take the lead, and (BAC) should drift up with it. If the ten-year Treasury market (TLT) holds 2.30% and moves up to a new, higher range, it will be a sure thing.
Keep in mind that the options market is highly illiquid now, so don?t hold me to these prices. They are ballpark estimates, at best.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don?t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
If the price of this spread has moved more than 5% by the time you receive this Trade Alert, don?t chase it. Wait for the next one. There are plenty of fish in the sea.
Here are the specific trades you need to execute this position:
Buy 110 December, 2014 (BAC) $15 calls at?????$2.14
Sell short 110 December, 2014 (BAC) $16 calls at..??.$1.22
Net Cost:??????????????????.....$0.92
Potential Profit: $1.00 - $0.92 = $0.08
(110 X 100 X $0.08) = $880 or 0.88% profit for the notional $100,000 portfolio.
