BAC Analysis

The financial company Bank of America Corp. (BAC), headquartered in Charlotte, North Carolina, gave a bull signal on Friday. With low implied volatility relative to its range for the past year, it is a candidate for a time spread of some sort.

[BAC in Wikipedia]

BAC

I shall structure the trade as a diagonal spread. For the short leg, I shall use the NOV series of options, which trades for the last time 25 days hence, on Nov. 20. For the long leg, I shall use the FEB 2016 series, which completes trading  Feb. 19, 116 days out.

Odds

BAC has completed four bull signals over the past year. Only one was successful, yielding 5.7% over 61 days. The three unsuccessful signals on average lost 4.6% over 17 days. The success rate is 25%.

The Trade

For the long leg, I shall buy the $16 call from the FEB series next year. It expires Feb. 20.

For the short leg,

Short the $16 calls
sold for a credit and expiring Nov. 21
Probability of expiring out-of-the-money

NOV	Strike	OTM
	16	53.9%

The premium is $0.12. The stock at the time of entry was priced at $0.

Decision for My Account

I'm declining the trade. The premium is so low that it produces insufficient yield.

-- Tim Bovee, Portland, Oregon, Oct. 26, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

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Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License



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Based on a work at www.timbovee.com.