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