Published On: Thu, Mar 2nd, 2017

How to get in on Bank of America — #SaxoStrats


Trump’s congressional address had a positive impact on the market. The S&P 500 was once again led by financials, up 2% for the day.  Shares of Bank of America (BAC), however, surged some 3.5% in heavy volume yesterday.

Just last week, Credit Suisse reiterated its recommendations on the shares without any changes in its estimates or target.  The Swiss bank estimates that a 1% rise in interest rates (all things being equal) would increase BAC’s revenue by nearly 4% to $ 88 billion in 2017. As a reminder, American rates are 50 bps or 0.50%, with the Fed promising a few additional rate rises. Whatever the case might be, BAC stock has some positive momentum, and if you want to trade it, here’s what you could do:

Bank of America (BAC) share price has positive momentum

Source: Saxo Bank

With the stock closing at $ 25.50, you could handle this in various ways: buy the shares outright or use options to create a bullish view. A common strategy among investors bullish on a stock but wanting to purchase a lower levels is the cash-secured put. However, if the stock continues to rally, they’d miss the upside. 

A combination of selling a cash-secured put and buying a call is called a synthetic long stock position. Here’s how this strategy looks using Dynamic Trend’s risk tools. 

Source: Dynamic trend 

Management and risk description

Risk is unlimited on this strategy as the stock could become worthless. Your prime motivation is to establish a long stock position without buying the stock at these levels.

Underlying price: $ 25.68

Status: opening trade

Trade: Buy +1 BAC 31 March 17 25.50 call at $ 0.70

    Sell -1 BAC 31 March 17 25  put at $ 0.46 


   net credit        $ 0.24

Source: Saxo Bank

maximum loss: unlimited

maximum gain: unlimited 

breakeven: $ 25.74

Entry: today with the combo ticket
Stop: no stop

Time horizon: short-medium term

Bank of America 5-year-chart

Source: Saxo Bank

— Edited by Clemens Bomsdorf

Non-independent investment research disclaimer applies. Read more
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