BAC is up today on media reports that the Obama Administration may introduce a nationwide mortgage refi plan. Thats all fine and good, but in an effort to look for a cheap way to play for a move lower btwn now and Jan expiration (which will capture the bank’s Q4 earnings), I will look to the options market for a low risk, potentially high reward structure. Here’s the trade:
TRADE: BAC $6.30 Bought the Jan21st 6 / 5.50 Put Spread for .10
-Bought 1 Jan21 6 Put for .16
-Sold 1 Jan21 5.50 Put at .06
Break-even on Jan21st Expiration:
Losses btwn 6 and 5.90 lose up to .10, with max loss of .10 above 6.00
Profits btwn 5.90 and 5.50 make up to .40 with max gain of .40, 5.50 or below.
THIS IS BY NO MEANS A HIGH CONVICTION TRADE, BUT THE STOCK WAS BELOW 6.00 THIS MORNING!! ONE PIECE OF UNEXPECTED BAD NEWS AND YOU MAKE MONEY.
The Flip side is you would have to be crazy to short this stock outright with all of the buy interest this year and all of the room above it……define your risk and risk what you are willing to lose.