Shares of financial giant Bank of America (BAC) have lost nearly one-third of their value in the past year amid a slowing economy and rising interest rates. One trader sees a rebound in the weeks ahead.
That’s based on the November 25 $32 calls. With 42 days until expiration, 5,841 contracts traded compared to a prior open interest of 106, for a 55-fold rise in volume on the trade. The buyer of the calls paid $0.99 to make the bullish bet.
Shares recently traded around $30, and just a hair off their 52-week low. So they’d need to rise $2, or about 7 percent, for the option to move in-the-money.
The drop in shares has taken the bank to 8 times forward earnings, down from 14 times earnings a year ago. And the bank trades at book value, a conservative measure of the bank’s aggregate loans and other activity.
Plus, even with a slowing economy and a halt in IPOs, mergers, and other big developments on Wall Street, revenue is only off 4 percent in the past year.
Action to take: Shares are a long-term buy in the sub-$30 range. At current prices, the bank yields nearly 3 percent, with room for share price appreciation and growth in the coming year as the interest rate hike cycle ends.
For traders, the November calls are a bit more short-term, but could yield high-double-digit gains or better on a bounce higher in shares in the coming weeks. Traders will want to book quick profits given the current market volatility.
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.