Bank of America (BAC) 10/28/09 PriceWatch Alert With 19.42% Downside Protection

Posted: Wednesday, October 28, 2009 8:22 AM EDT
By: Market Intelligence Center Staff

Bank of America (NYSE: BAC) closed yesterday at $15.45. So far the stock has hit a 52-week low of $2.53 and 52-week high of $24.62. Bank of America stock has been showing support around 14.82 and resistance in the 15.86 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 a May '10 14 covered call (BYO EN) for a net debit in the $12.45 area. That is also the break even stock price for this trade. This covered call has a 206 day duration, provides 19.42% downside protection and a 12.45% assigned return rate for a 22.06% 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 5 Call (VBA AP) and selling the May '10 14 call (BYO EN) for a $7.65 debit. The trade has a 206 day life and would provide 18.12% downside protection and a 17.65% assigned return rate for a 31.00% annualized return rate (for comparison purposes only). Bank of America has a current annual dividend yield of 0.25%. [WBA-Seven Summits Research]