Seems the sky is the limit for Bank of America (NYSE: BAC) right now, with the stock trading very close to its 52-week high of $10.10. It also seems traders think the stock will be trading above $10 by the beginning of the next quarter based on the recent options activity.
At the time of writing, open interest for the Jan 10 call was roughly 870,000. The Jan 11 call was the most actively traded. The volume for those contracts was roughly 30,000. They expire on Jan. 18.
I came across a covered call strategy at Born to Sell that you may find interesting if you already own the stock. Let's say you own 100 shares. According to this site, you could earn $43 of option premium between now and the expiration by selling call options.
The increased interest in Bank of America stock options comes on the heels of several positives the stock is enjoying. That includes the bank's CEO, Brian Moynihan, saying that it expects to issue more mortgage loans for this quarter compared to the number it issued during the fourth quarter of 2011.
We should know how this turns out soon; the bank reports 2012 fourth quarter earnings on Jan. 17.
It's no surprise to me that the bank expects to do better during this quarter. All mortgage lenders should. Not only is the overall housing market improving, but so are consumer confidence levels.
In fact, home values are up roughly 6% so far this year compared to last year.
Like that of other lenders, Bank of America's revenue from its mortgage business began tanking due to the 2008 housing market crisis. Its stock price also tanked. The stock quickly began to sink by 2009, dropping as low as to around $3.65 a share.
Bank of America's problems were mainly associated with the subprime loans made by Countrywide Financial, which it acquired. Things have slowly improved, with the bank reporting strong earnings for the past few quarters. It also passed the Federal Reserve's stress test in the spring, which was key for it to be able to raise its dividend payouts and complete share buybacks.
Many investors may have been disappointed last year when the Federal Reserve rejected a dividend increase request Moynihan had sought. However, everything happens for a reason. The bank was able to focus on building its capital and absorbing the losses from its mortgage business, which puts it on a more solid financial footing. Questions remain over whether or not Bank of America will have enough capital to absorb all of those losses, however.
Still, I don't see this as greatly slowing the stock's momentum. The Street reported that its shares have now returned 79% year-to-date, following a 58% decline during 2011. I expect the options action to continue to be strong for Bank of America.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.