Is Bank of America stock (NYSE:BAC) good for covered call writing?
Bank of America stock is one of my favorite stocks, and for a long time, I’ve been thinking of selling covered calls on it.
In fact, back in March/April 2020, I was selling covered calls with BAC stock and now I can only regret I let it go at $25 or something in May/June 2020
This is not trading advice. Investments in stocks, funds, bonds, or cryptos are risk investments and you could lose some or all of your money. Do your due diligence before investing in any kind of asset.
Instead of buying/writing calls on BAC, right now I’m dollar cost averaging 100 shares with BAC and once I will have enough shares I’m looking to start selling covered calls.
For the moment I’m buying 3 shares of BAC once a week (currently holding 6) and with such pace, I should reach 100 shares in 31 weeks (about 8 months)
BAC Stock Price Forecast
The 23 analysts offering 12-month price forecasts for Bank of America Corp have a median target of 51.00, with a high estimate of 66.00 and a low estimate of 40.00. The median estimate represents a +22.83% increase from the last price of 41.52.
The current stock forecast looks quite optimistic to me, and at the current stock price ($41) I see BAC as attractive for covered call writing.
As my current buy price (after buying mere 6 shares) is $35.41, and as most probably I will add 3 more shares today, my buy cost will go up to $37.36 - I find BAC trading above $40 good for my covered call writing.. but I don’t know where the price will be in 31 weeks.
Let’s look at the option chain (monthly)
On March 15, 2022, you could buy 100 shares of BAC stock spending $4,150 and simultaneously sell out of the money April 14 expiry covered call with a strike price of $42 for about $1.62. That gets you $164 and makes about a 3.95% return in about 30 days. Break-even: $39.88
If BAC stock closes below $42 on April 14, you keep the premium and start over. If the stock closes above $42, your stock gets called away, and you realize your max gain
There are several options you could use not to get shares called away, like a roll-up or roll forward. Or you could sell the stock, and start over by writing cash-secured put.
In case your stock gets called away at $42, remember you have made a premium + value gain. -$4,150+$4,200+$162= +$212. That would be about a 5.10% yield on your initial investment in about 30 days.
It could also go completely against you, and the share price could drop significantly.
Remember, you are selling one contract, 100 shares of BAC stock, make sure you have 100 shares to sell if called away.
Answering the question asked in the title: Is BAC stock (NYSE: BAC) good for covered calls?
it depends on what is your average buy price. $41.50? yes, you could get some juicy 1.62 dollars for monthly contracts.. $35? even better.
Also, it depends - are you happy holding BAC for a long term (say at least a year).
What are your thoughts on BAC stock? are we going to re-touch $50 this year?