Bank of America has seen relatively strong performance in the past six months, rising more than 10% in that time. So, long-term investors thinking Bank of America stock might trade sideways for a few months could look at selling covered calls on their underlying stock position to increase their income.
Bank of America stock is also sitting above the 21-day exponential moving average as well as the 50 and 200-day moving averages. A cup with handle has formed, creating a new buy point of 47.51. Shares have jumped 86% since bottoming at 24.96 in the week ended Oct. 27, 2023.
In the fourth quarter of 2024, the company reported earnings of 82 cents per share, more than doubling from 35 cents the previous year, with a 15% increase in revenue to $25.3 billion. Analysts had upgraded Bank of America stock ahead of earnings, citing expectations of billions of dollars worth of buybacks this year.
Bank Of America Stock Today
The stock's annualized dividend yield currently stands at 2.23%, according to MarketSurge. But savvy investors can significantly increase the yield from their Bank of America shares using covered calls.
A covered call involves buying 100 shares of the underlying stock and simultaneously selling a call option against those shares.
Selling the calls limits the upside but increases the yield from the investment in the form of option premium.
The investor keeps the premium generated from selling calls, no matter what happens with Bank of America stock.
According to the IBD Stock Checkup, BAC ranked No. 13 in its group and has a Composite Rating of 89, an EPS Rating of 80 and a Relative Strength Rating of 82.
When trading covered calls, most investors sell monthly calls against their stock to make the most of the effects of time decay.
That makes a lot of sense but also requires a lot of active management. What if we sold longer-term covered calls against Bank of America stock? Let's take a look.
Long-Term Covered Call: The Setup
On Bank of America stock, a Jan. 16, 2026, expiring call option with a strike price of 50 recently sold for around $3.25, generating $325 in premium per contract.
Purchasing 100 shares of Bank of America stock will cost around $4,620, but the net cost can be reduced by the $325 option premium received.
Therefore, we have created a yield of 7.57% (325 / 4,295) in 355 days, or 7.78% annualized.
That clearly beats the dividend yield on most stocks in the current market and still allows for around $380 of capital appreciation.
Covered calls are a fantastic way to generate extra income from a stockholding while also providing some downside protection. Investors would need to weigh the pros and cons of the stock before initiating a bullish trade like a covered call.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ
