Premium Earnings 10-14-14: Bank of America and Blackrock

• Posted by Greg Harmon
• on October 14th, 2014

Two names today that report before the open Wednesday, Bank of America, $BAC, and Blackrock, $BLK.

Bank of America, $BAC

Bank of America, $BAC, has traced out a bearish Bat harmonic since March, and retraced over 38.2% of the pattern. The next target lower would be to 15.77. Into earnings it is stabilizing with a Relative Strength Index (RSI) that is turning back higher and in the bullish zone with the MACD falling. There is support lower at 16.35 and 16.10 followed by 16 and 15.65. There is resistance higher at 16.80 and 17.20 followed by 17.40 and 18. The reaction to the last 6 earnings reports has been a move of about 2.58% on average or $0.45 making for an expected range of 16 to 17. The at-the money October Straddles suggest a larger $0.60 move by Expiry with Implied Volatility at 45% above the November at 28%. Short interest is low under 1%. Open interest favors the 17 Strike but is strong from 16 to 18.

Trade Idea 1: Buy the October 16.5/17/17.5 Call Butterfly for 10 cents.

Trade Idea 2: Buy the October 16.5/17 1×2 Call Spread for $0.07.

Trade Idea 3: Buy the October 16.5 Put for 30 cents.

Trade Idea 4: Buy the October/November 17 Call Calendar for 30 cents.

Trade Idea 5: Sell the October/November 15 Put Calendar for 17 cents.

#1 or #2 play the upside counting on the Open Interest this week and history. #3 the downside. I like #4 and #5 together.

Blackrock, $BLK

Blackrock, $BLK, has pulled back to the rising trend line on a big move lower. Heading into earnings the Relative Strength Index (RSI) is cracking the bullish zone with a falling MACD. There is support lower at 300 and 295 followed by 293 and 286. There is resistance higher at 306.50 and 314.25 followed by 320 and 327 before 333 and 337. The reaction to the last 6 earnings reports has been a move of about 1.55% on average or $4.80 making for an expected range of 301.50 to 311. The at-the money October Straddles suggest a larger $10 move by Expiry with Implied Volatility at 40% above the November at 26%. Short interest is negligible. Open interest favors the 330 Strike on a favorable reaction but there is big Open Interest at 260 on the Put side. There were buyers of the 310 bullish Risk Reversal yesterday.

Trade Idea 1: Buy the October/November 320 Call Calendar for $5.50.

Trade Idea 2: Buy the November 310/320 Call Spread ($5.60) selling the October/November 280 Put Calendar ($2.90) for $2.70.

strong>Trade Idea 3: Buy the October 300/280 Put Spread for $2.75.

#1 & #2 cover the upside longer term. #3 gives short term downside exposure or can protect a position. I like #2 if you have the margin and like the company at 280, else #1.

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