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Overbought Stock of the Day: Bank of America Corp (BAC)

Overbought Stock of the Day: Bank of America Corp (BAC)

Traders shifting out of growth stocks are pushing up bank stocks. The space is starting to see a number of stocks rally into overbought territory. One such name? Bank of America Corp (BAC).

Shares are up nearly 20 percent since the start of the month, a big move for the major bank. That’s taken shares to a relative strength index, or RSI, of 77. That’s well into overbought territory. When shares last reached this territory at the start of the year, they pulled back just over 10 percent.

While banks are a play on a reopening and recovering economy, chances are there will be some fits and starts along the way, which indicates that several more pullbacks are ahead, even if the stock’s longer-term trend is up.

Action to take: The April $33 puts, last trading near $0.63, are an inexpensive hedge on the bank coming back down from here. The strike price is about a 10 percent pullback from current levels, or about half of the stock’s recent rally.

That’s the perfect price point to look for in a pullback. Traders may be able to see triple-digit returns on this low-priced option. Should shares continue higher instead, the cost of this hedge trade is minimal. That’s a great combination for an options trade.