With bank stocks beaten down, after SVB bank closure in the US, investors are starting to take notice of the potential opportunity to buy in at a lower price. Bank of America, one of the largest banks in the US, has faced significant headwinds due to low-interest rates and increased competition from fintech companies.
However, with the US economy gradually recovering from the COVID-19 pandemic, there may be potential for Bank of America to rebound, making it an attractive investment opportunity for some investors.
One trading strategy that investors may consider is selling put options on Bank of America stock.
This is not trading advice. Investments in stocks, funds, bonds, or cryptos are risk investments and you could lose some or all of your money. Do your due diligence before investing in any kind of asset
Put options are financial contracts that give the holder the right, but not the obligation, to sell an underlying asset at a predetermined price (known as the strike price) within a specified time frame. When an investor sells a put option, they are essentially agreeing to buy the underlying asset if the price falls below the strike price.
By selling put options on Bank of America stock, investors can collect premium income and potentially buy in at a lower price if the stock falls below the strike price.
You could sell a put option with April 14, 2023 expiry with a strike price of $24 for about $0.41. That gets you $41 and makes about 1.7% return is about 30 days. Or about 20.62% annualized. Break-even: $23.59
If BAC stock closes above $24 on April 14, you keep the premium and could start over. If the stock closes under $24 you risk getting assigned but check your break-even points. There are several options you could use not to get assigned, like a roll down and roll forward. Or you could take stock, collect the dividend and start selling covered calls. Strategy known as tripple income
Remember, you are selling one contract, 100 shares of BAC stock, make sure you have $2,400 cash or buying power (margin) to buy 100 shares if assigned.
However, some investors may be hesitant to sell put options on Bank of America stock, concerned that they may be "catching a falling knife." In other words, if the stock price continues to fall, the investor may be left holding a stock that continues to underperform.
To address these concerns, it's important for investors to carefully consider the risks and benefits of selling put options on Bank of America stock. Some factors to consider include:
-
Market conditions: Investors should carefully monitor market conditions and news events that could impact the price of Bank of America stock. If the economy continues to recover and interest rates rise, Bank of America may be poised for a rebound.
-
Strike price selection: Choosing the right strike price is important when selling put options. Investors should select a strike price that is below the current market price of Bank of America stock but not so low that it is unrealistic.
-
Risk management: Selling put options on Bank of America stock involves risk, and investors should have a plan in place to manage that risk. This may involve setting stop-loss orders or rolling options to later expiration dates.
In conclusion, while selling put options on Bank of America stock may be an attractive trading strategy for some investors, it's important to carefully consider the risks and benefits before making any investment decisions.
Interested to learn more about my options trades? Sign up for Covered Calls newsletter!
