When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.
Trade Alert - (BAC) TAKE PROFITS
SELL the Bank of America (BAC) December, 2017 $25-$26.50 in-the-money vertical BULL CALL spread at $1.49 or best
Closing Trade
12-8-2017
expiration date: December 15, 2017
Portfolio weighting: 10%
Number of Contracts = 74 contracts.
I like making 9.55% in five trading days.
I like it so much that when it does happen I grab the first opportunity to book the profits.
We really nailed the stock, catching a meteoric 11.32% move in the first two days.
With only a penny left in the spread, the risk/reward of continuing is no longer favorable. As my late mentor, Barton Biggs, used to tell me, always leave the last 10% of a move to the next guy.
I am therefore selling my position in the Bank of America (BAC) December, 2017 $25-$26.50 in-the-money vertical BULL CALL spread at $1.49.
They say you make a money in a trade on the "buy" going in, and that was certainly the case with this trade.
At one point last Friday, the Dow Average was down $350 points, and bonds (TLT) soared three full points, demolishing bank shares, all thanks to the Michael Flynn guilty plea.
That gave me the perfect opportunity to pull the trigger on the long side with (BAC). It has paid off in spades.
Take this Trade Alert as an early Christmas gift. It was a rare chance to get into what will be one of the top performing sectors of 2018 at a decent price.
To lose money on this position (BAC) would have to have fallen below $26.50 by the December 15 options expiration in ten trading days. With the world going gaga over bank shares, there was no way that was going to happen.
If you bought the stock instead of the options keep it. (BAC) is going much higher in 2018.
The prospect of the signing of a new tax bill has been like waving a red flag in front of a bull for Bank of America (BAC) shares.
What did the stock do? It rocketed by 11.32% in a week, along with the rest of the market, hitting $29.50. The shares appear to be taking a run at yet another new multi-year high.
The latest Q3 earnings report was stellar, beating expectations handily on both the top and the bottom lines. Expenses are in free-fall, and the company's cost of funds are plummeting, as lower cost deposit surge.
Analysts were blown away when they saw revenues of $22.079 billion, producing a fully diluted earnings per share of $0.47. The company returned billions to shareholders in the form of dividends and an aggressive share buy back program.
Loans we up 6% YOY. Net interest income rose to $11.33 billion.
Every major business segment showed big year on year improvements, including consumer and business banking. Global wealth and investment management knocked the cover off the ball.
Only bond trading was off 22%, given the miserable trading volumes and volatility seen this year, and is consistent with the results seen at other banks. That should rebound smartly in 2018 when the bond market finally collapses.
Deposits from mobile banking jumped. Average deposits are up 4%. Subterranean interest rates kept income there flat.
Given the bank's tremendous upside leverage, many analysts are now pegging the stock with a long term $50 handle.
There is another play here. (BAC) is highly geared to raising interest rates, which will enable them to lend money out at higher interest rates, increasing their spread. Think of it as long dated put option on the iShares Barclays 20+ Treasury Bond ETF (TLT).
That is not a bad position to have on board, given that we probably put in a multigenerational spike in bond prices in 2015.
Because of the bank's long and well-publicized problems with regulators dating back to before the 2008 financial crisis, (BAC) became toxic waste for many portfolio managers.
The end result of that has been to make the best-run banks in the industry also the cheapest.
I have a feeling that I will be visiting the trough here often, and generously.
Here are the specific trades you need to execute this position:
Sell 74 December, 2017 (BAC) $25 calls at..............................................$3.90
Buy to cover short 74 December, 2017 (BAC) $26.50 calls at.......................$2.41
Net Proceeds:............................................................................................$1.49
Profit: $1.49 - $1.36 = $0.13
(74 X 100 X $0.13) = $962, or 9.55% in 3 trading days.
To see how to enter this trade in your online platform, please look at the order ticket above, which I pulled off of Interactive Brokers.
If you are uncertain on how to execute an options spread, please watch my training video on How to Execute Vertical Call and Put Debit Spreads by clicking here.
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Please keep in mind that these are ballpark prices only. There is no telling how much the market can move by the time you get this.
Be sure you've signed up for our FREE text alert service. When seconds count, this feature offers a trading advantage. In today's market, investors need every advantage they can get.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you.
The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don't execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile close to expiration.
If you don't get done, don't worry. There are another 250 Trade Alerts coming at you over the coming 12 months.
