Cramer calls Bank of America (NYSE:BAC) a buy

Bank of America (BAC) Jim Cramer, host of CNBC’s lively (and often controversial) Mad Money program, weighed in on Bank of America BAC late last week. The pundit still calls the stock a solid buy and said that if financial regulation passes, investors won’t be able to “find bank stocks anywhere near where they are” so he encourages people to pull the trigger now. BAC is set to report earnings on July 16 (expiration Friday) ahead of the opening bell.

BAC shares have dropped more than 20% from their April 15 peak but could be putting in a rounding bottom around the 15 level. BAC has not traded solidly below 15 since last July, so it may have some support at this region. Investors who want an alternative to buying the shares outright (spending $1,571 for 100 shares) could consider option strategies, some of which offer reduced risk and enhanced leverage.

Two hypothetical debit-spread strategies on BAC – one bullish, one bearish – are described below. Remember these serve as examples, not recommendations. Consider your own risk/reward parameters and personal trading goals before executing any new trades.

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*Prices given as of Monday morning. BAC was trading at $15.71

Bullish Option Strategy: Bull Call Spread

Investors who also think BAC is a “buy” could scoop up intermediate-term bull call spreads. The August 12/17 call spread can be purchased for a net debit of $3.30 (buying the 12 call and selling the 17 call). This net debit paid is also the maximum potential loss. If BAC is trading above $17 when these options expire in 67 days, the trader collects the maximum potential credit of $1.70 (a reward on risk of 52%). Breakeven at expiration is $15.30; anywhere above this level, the spread will be profitable.

Profit/Loss of Bank of America (BAC) bull call spread

Bearish Option Strategy: Bear Put Spread

Those who disagree with Cramer on BAC (and pretty much everything) and would like to profit with further BAC downside could consider a bear put spread. The November 20/16 put spreads are priced at a net debit of $2.58 (buying the 20 put, selling the 16 put). Breakeven at expiration is $17.42; if BAC is trading anywhere below this level on November 19, the spread will be profitable. The maximum loss is 100% of the debit paid, or $2.58, while the maximum gain is $1.42. The maximum loss occurs if BAC is trading above $20 at expiration while the maximum gain will be collected if BAC is still below $16 when the options expire. This moderately bearish play does not require the stock to move lower between now and expiration, it merely needs the shares to not advance in order to achieve the maximum profit.

Profit/Loss of Bank of America (BAC) bear put spread