Shares of Bank of America (BAC) are down 28 percent in the last year as lending activity has slowed amid a rise in interest rates. One trader sees a further decline over the next two years.
That’s base on the January 2025 $32 puts. With 841 days until expiration, 15,002 contracts traded compared to a prior open interest of 935, for a 16-fold rise in volume on the trade. The buyer of the puts paid $6.03 to make the bet.
Bank of America shares last traded around $30.50, indicating that the option is about $1.50 in-the-money, and is a bit inexpensive for a trade with over two years to play out.
Earnings are down 32 percent in the past year, and revenue is off 4 percent. That trend may continue if interest rates continue to rise into next year, and then stay at elevated levels before coming down again further down the line.
Action to take: Further weakness is likely given current monetary and macroeconomic conditions for big bank stocks, even with shares trading near book value. Investors should avoid shares now, and look to buy in the $20 range in the months ahead for a long-term rebound.
For traders, the long-term puts can continue to deliver gains as long as economic conditions continue to tighten. That could change at some point in the spring of 2023 at the earliest, so until that happens, the options can continue to increase in value.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.