Bank of America CEO Predicts Big Dividends by 2013


BAC logoBank of America (BAC - option chain) shares are rising today after the company's CEO, Brian Moynihan, told attendees at the company's investor day conference that he thinks BAC can earn between $35 and $40 billion a year in pretax earnings when its business normalizes. He also said that by 2013 the bank could be paying up to $12 billion a year in regular dividends. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on BAC.

BAC opened this morning at $14.27. So far today the stock has hit a low of $14.20 and a high of $14.67. As of 12:40, BAC is trading at $14.63 up 0.60 (4.2%). The chart for BAC looks neutral and S&P gives BAC a neutral 3 STARS (out of 5) hold ranking.

For a bullish hedged play on this stock, I would consider a May bull-put credit spread below the $13 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in two and a half months as long as BAC is above $13 at May expiration. Bank of America would have to fall by more than 11% before we would start to lose money. Learn more about this type of trade here.

BAC has not been below $13 since December and has shown support around $13.80 recently.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent controls bullish hedged positions in BAC
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Last updated: June 19, 2013: 02:34 AM

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