Bank of America Earnings Trade Ideas

Bank of America, $BAC

Bank of America, $BAC, is coming out of a ‘W’ pullback and now building an ascending triangle, tapping resistance at the top at 9.65 as it heads into the earnings report Wednesday morning. With a Relative Strength Index (RSI) that is bullish and a Moving Average Convergence Divergence (MACD) indicator that is about to cross to positive, it has a upward bias. The target on the break out of the triangle higher would be to 10.60. There is resistance higher at 10.05 followed by 10.50 and 11.09. Short interest is elevated at over 15% in the name and could help fuel a move higher. There is support lower at 9.14 and 8.80 followed by 8.35. The reaction to the last 6 earnings reports has been a move of about 3.85% on average or $0.37 making for an expected range of 9.15 to 9.90. The at-the money October Straddles suggest a roughly $0.46 move by Expiry with Implied Volatility at 60% above the historical at 35% but and November at 38%. There is monster options volume today at over 350,000 contracts traded with calls outnumbering puts by about 5:1. Unfortunately the downside puts do not have enough value to sell.

Trade Idea 1: Buy the October 9.5 Call for $0.24.

Trade Idea 2: Buy the October 9.5/10 Call Spread for $0.18.

Trade Idea 3: Buy the October 9.5/10/10.5 Call Butterfly for $0.14.
Buying the October 9.5 and 10.5 Calls and selling 2 October 10 Calls, looking for a move to 10 for maximum payout.

Trade Idea 4: Buy the October/November 10 Call Calendar for $0.18.
Sell the October 10 Call and buy the November 10 Call, looking for a move higher, but not above 10 by Friday.

I like #4 the best for a continued move higher but a struggle to overcome the nearly 300k Open Interest (OI) in the October 10 Call.

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