Bank of America Update

Yesterday morning before the marlet opened, I had mentioned a couple of March call options for Bank of America (BAC, $5.87, down $0.20). The March 6 calls (BYOCF, $1.15, down $0.15) and the March 7 calls (BYOCG, $0.78, down $0.09) had lost 50% of their value on Tuesday. We were trying to get into these call options from where they had closed at on Tuesday which was $1.10 and 75 cents, respectively.

On Wednesday, these options never made it to our entry prices as BofA traded higher for most of the day. This morning the March 6 calls opened at $1.15 and the March 7 calls opened at 80 cents. The stock bounced higher in the first 30 minutes but started to fade afterwards. This gave us the chance to lower our entry price to 90 cents for the March 6 calls and 60 cents for the March 7 calls. Remember, sometimes its best to wait for the stock to come back to you.

In other words, a lot of novice option traders will rush in when they see a stock or option taking off. Like in the first 30 minutes of trading. When you set entry prices at where you want to come in at, you take all of the drama out of the trade. So what, BofA bounced higher on Wednesday but came back to us on Thursday and at a discount. All we are looking for is 50%-100% gains on our option trades and then we get out. Nothing fancy.

BofA rebounded in the last hour of trading along with the rest of the market after a report surfaced that the government is planning to subsidize troubled homeowners’ mortgage payments. The stock quickly reversed course and the March call options closed right at the entry prices we had set.

Akamai Technologies (AKAM, $17.84, up $0.58), which had managed to hold its own before the announcement, gained over 3% for the day. The March 17.50 calls (UMUCW, $1.50, up $0.30) jumped 25%. These calls could have been bought all week long for under $1.25 but today may have been the last time they trade that low.

The fact that the market traded higher after the report was good news which could carry over into Friday. If so, both BofA and Akamai could be headed higher as well.

Rick Rouse
Rick@OptionsMentoring.com

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