Big Printin’ – BAC Bank Shot

by Dan April 12, 2017 4:05 pm • Big Printin'

Let me reiterate something you probably know… The surprise election result in the wee hours of November 9th, 2016 caused a tectonic shift in the way investors viewed stocks and sectors that have been heavily regulated in the prior administration but most importantly… since the financial crisis. There were few companies/ stocks that were as heavily scrutinized as Bank of America (BAC), which might be one reason why the stock has so massively outperformed the broad market and almost every mega-cap bank peer since its November 8th close. It’s currently up 32% from the election, but was up 50% on March 2nd!

This very outperformance is one of the main reason Citigroup bank analyst Keith Horowitz downgraded his rating on the stock last week from Buy to Hold, while cutting his 12-month price target to $25, about 10% from current levels, per the FT.com:

“We believe that the benefit of higher rates, the potential post-election improvement in regulatory and economic outlook are reflected in the current valuation,” said Mr Horowitz.

“In our view, a material improvement in the economic backdrop would be needed to move earnings forecasts higher from here”.

BAC will report Q1 earnings on April 18th, prior to the open, but it appears that one trader today rolled out a put position a week, that might be a hedge or an outright bearish bet. When the stock was $22.80 at 3pm today a trader sold to close 60,000 April 23 puts at 52 and 1/2 cents and bought to open 60,000 April 28th weekly 23 puts for 68 cents to open, resulting in a net debit of 15 and 1/2 cents, and new break-even on April 28th of $22.845, basically in the money.

The timing of the roll is interesting, an hour before the close, but importantly before Citigroup (C), JP Morgan (JPM) and Wells Fargo (WFC) are scheduled to report Q1 earnings tomorrow before the open.

To my eye, $22 is a fairly important technical support level, with little support down to $20:

Bloomberg

Aside from bank earnings, this trader might also be targeting April 28th, the date in which lawmakers in Washington have to agree on a proposal to keep the government funded to avoid another showdown. If that were to come down to the wire I suspect we could see a good bit of volatility in the broad market.