BAC Analysis

Bank of America Corp. (BAC)

Update 1/20/2016: BAC shares fell after publishing earnings and thereafter traded in a range. Declining implied volatility carried the position to 28% of maximum potential profit. My profit target on iron fly positions is 25%.

Shares declined by 1.1% over eight days, or a -50% annual rate. The options position produced a +39.4% yieled on debit for a +1,796% annual rate.

BAC publishes earnings on Friday prior to the opening bell.

I shall use the FEB series of options, which trades for the last time 36 days hence, on Feb. 17.

Implied volatility stands at 31%, which is 2.7 times the VIX, a measure of the volatility of the S&P 500 index.

BAC’s IV stands in the 48th percentile of its annual range and the 65th percentile of its most recent broad movement.

The price used for analysis was $22.83.

 

Premium: $1.75 FEB iron fly
WFC   Odds Delta
Calls
Long 26.00 92.5% 9
Break-even 23.77
Short 22.00 37.6% 66
Puts
Short 22.00 63.6% 33
Break-even 20.23
Long 18.00 97.9% 2

The premium is 43% of the width of the position’s wings.

The risk/reward ratio is 1.3:1.

Decision for My Account

I have entered a position on BAC as described above. The stock at the time of entry was priced at $22.88.

Tim Bovee, Portland, Oregon, Jan. 12, 2017

2 thoughts on “BAC Analysis

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