Bank of America (BAC) has been going down the past week or so but it has now prime for a buy. Today in fact I purchased a $25 call that expires on 12/21 for 35 cents. I feel there is enough here to warrant the option play that I will explain in this post. Normally I would buy the stock outright rather than buy call options.
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Bank of America (BAC) and the Downtrend
As you can see form the chart Bank of America (BAC) has decline from around $29 to where it currently is at $24.57.
The setup is my lightning trade. One new item I have added as a tool for when Lightning Trade setups have retraced a ton is using a trend line break. It is very similar to what I look for as an entry point in my Bread and Butter trade for one of the filter entries: https://evancarthey.com/my-fibonacci-extension-bread-and-butter-trade-part-5-entry-filter/
Price currently has broken out of the trend line and has continued to go down which is also one thing I look for. Usually once there is a trend line break price will either pull back and make a double top/bottom or make a new low/high before moving in our favor. Price currently has made just about a double bottom.
The Entry and Exit
You can get in now where price is at $24.57 or anywhere near there. The exit is at $27.75. The hard exit is at $27.89 but you know I always have the exit before the hard exit to ensure I get filled. Now since I am trading a call option I’m not sure if I will wait until $27.75 is hit since there are only 7 trading days before it expires. It just depends on where price is located and if there is any profit.
In the lightning trade the final exit is at the 50% of the Fibonacci retracement which is the bottom of the gray box.
Here you can also see the Fibonacci extension move has price hitting off of the 200% extension area. This is a huge move without a retracement. I have seen price go to 261% and rarely 423%. So the 200% coupled with price breaking the trend line and then moving down again is a HUGE signal for me to go long.
Which is why I am not buying the stock outright but have purchased a call. I don’t trade options very much so I am testing the waters for a bit before I start buying multiple contracts to see if this works.
I’ve thought about buying a put when I purchase the stock outright when I trade because it seems that price always goes down for a bit before moving back up. In fact if I had done this with some trades I’ve been in for a long time I would have made a ton back in order to buy more stock. It is something I am researching to see how it would fit my trading style.
Conclusion
I am long Bank of America (BAC) with a call option that expires on 12/21. Normally I would buy the stock outright but I wanted to try options for a bit since you can get a ton more leverage. Since I don’t trade options often I am testing the waters with very small purchases. If you buy the stock outright then the setup is great for it and you don’t have to worry about the time factor.
If price continues to go down and my option expires worthless then I will buy the stock outright.
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My Robinhood Review: https://evancarthey.com/review-robinhood-trading-service-with-no-fees-part-1/
