The financial services sector has moved up this week. I am recommending we roll our Bank of America (BAC) and Citigroup (C) puts to generate more income and reduce our net debits on the positions.
Since the BAC put is in the money and we are rolling mainly to buy more time and reduce our risk, this trade is only for members already in the position.
Citigroup is up significantly more than its peers this week thanks to news that Warren Buffett bought nearly $3 billion worth of shares in the first quarter. Buffett is the king of long-term investing and clearly sees value in the beaten-down shares of Citigroup.
By the way, BAC happens to be Berkshire Hathaway’s (BRK-B) second-largest holding after Apple (AAPL).
You can enter the second leg of the C roll even if you are not in the current position. Just be aware that we will be managing and tracking it based on the ongoing position.
BAC May Monthly (5/20) 35.50 Put
Current Stock Price: $34.56
Net Debit: $8.41
Action:
- Buy to close the BAC May Monthly (5/20) 35.50 Put for around $1.03
- Sell to open the BAC Jun Week One (6/3) 34.50 Put for around $1.17
- Set your initial credit limit at $0.14, but adjust as needed to roll today
New Net Debit: $8.27
Expiration: After the close on Friday, June 3
Potential Rate of Return: I am targeting breakeven for this position
C May Monthly (5/20) 49 Put
Current Stock Price: $50.01
Net Debit: $17.32
Action:
- Buy to close the C May Monthly (5/20) 49 Put for around $0.32
- Sell to open the C May Week Four (5/27) 50 Put for around $1.36
- Set your initial credit limit at $1.04, but adjust as needed to roll today
New Net Debit: $16.28
Expiration: After the close on Friday, May 27
Potential Rate of Return: I am targeting breakeven for this position