Bank of America (BAC) 12/31/09 PriceWatch Alert With 16.32% Downside Protection

Posted: Thursday, December 31, 2009 8:35 AM EDT
By: Market Intelligence Center Staff

Bank of America (NYSE: BAC) closed yesterday at $15.07. So far the stock has hit a 52-week low of $2.53 and 52-week high of $19.10. Bank of America stock has been showing support around 14.92 and resistance in the 15.18 range. Technical indicators for the stock are Bearish and S&P gives BAC a very positive 5 STAR (out of 5) strong buy rating. BAC appears on the Investors Observer Hedged Dividend Income list. For a hedged play on this stock, look at an Aug '10 14 covered call for a net debit in the $12.61 area. That is also the break even stock price for this trade. This covered call has a 233 day duration, provides 16.32% downside protection and an 11.02% assigned return rate for a 17.27% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the BAC Jan '11 10 Call and selling the Aug '10 14 call for a $3.34 debit. The trade has a 233 day life and would provide 11.48% downside protection and a 19.76% assigned return rate for a 31.00% annualized return rate (for comparison purposes only). Bank of America has a current annual dividend yield of 0.26%. [THA-Seven Summits Research]