Bank of America (BAC) 11/17/09 PriceWatch Alert Could Hit 20.60% Return

Posted: Tuesday, November 17, 2009 8:13 AM EDT
By: Market Intelligence Center Staff

Bank of America (NYSE: BAC) closed yesterday at $15.87. 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 15.46 and resistance in the 16.46 range. Technical indicators for the stock are Bullish 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 $12.67 area. That is also the break even stock price for this trade. This covered call has an 186 day duration, provides 20.16% downside protection and a 10.50% assigned return rate for a 20.60% 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 $7.85 debit. The trade has an 186 day life and would provide 19.03% downside protection and a 14.65% assigned return rate for a 29.00% annualized return rate (for comparison purposes only). Bank of America has a current annual dividend yield of 0.25%. [ATU-Seven Summits Research]