Bank of America Corporation (BAC) is currently trading around $15.80 in a 52 week range of $14.37-$18.21. The stock has been relatively weak this year with shares falling by nearly 12% year to date. BAC is set to report their most recent quarterly earnings tomorrow morning before the bell. Analysts are looking for earnings of $0.29 per share. The stock is relatively flat ahead of the report but historical data suggests that the stock could sell off on the release.

BAC has sold off on earnings day 8 of the past 12 quarters with an average move of around 4.15%. The stock has only rallied from earnings to options expiry 3 times in the past 12 quarters. BAC is also looking very weak on chart. The stock is trading well below the Ichimoku Cloud on the daily chart and both key moving averages on the cloud are also below the Ichimoku Cloud. Currently market makers are implying a move of around $0.54 in BAC stock by this

Friday’s expiration. This can be used to calculate an implied downside close of $15.26.

With both technical and historical weakness in BAC I will be looking to get short ahead of earnings. Using the downside target implied by the market maker I will put on a bearish options trade.

Potential Trade: Buying the BAC Apr 15.5 Puts for $0.14
Risk: $14 per 1 lot
Breakeven: $15.36

Andrew Keene

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