Dykstra: Bank on Battered BofA

The markets followed Tuesday's heavy negativity with an all-out roller-coaster ride. To this point, I have shied away from the financial sector. However, I believe now is the time to take a look at deep-in-the-money calls in Bank of America(BAC Quote). Out of all the financials, this behemoth of a bank gives investors the greatest value, in addition to the greatest upside now.

Bank of America, along with Citigroup(C Quote) and other financials, have experienced a heavy selloff in the wake of large subprime losses. Both stocks have been in a free-fall since early October, and one outcome of the losses has been that Bank of America is now our nation's largest bank by market capitalization.

Although the majority of the news remains negative, the country will not let these large banks fail. They play such an important role in the stability of our economy that the Federal Reserve Bank will take all steps necessary to ensure these companies stay stable.

Although I believe Citigroup to be a scary position, Bank of America draws my attention because the company has aggressively targeted and conquered many markets throughout the country over the last few years. Plus, BofA has been cutting jobs of late, which should help bolster its profit margin.

Additionally, the losses in the subprime market will not last forever. Companies like Bank of America will learn from these experiences and return to what they do best -- make money. Today, I will place a limit order for 10 January 30 calls (VBAAF) for $12.90 or better. Use limit orders and let it come in.

Fielding Reader Email

Lenny, In your Stat Book, I did not understand the DITM next buy level. Can you explain in more detail about this column?

The next buy level column lists the underlying common stock prices my open positions need to drop to before I add more DITM calls. When the price of the stock falls, it is important to add more DITM calls contracts at the lower price.

This will lower my average cost per contract significantly. With a lower cost basis, I have the opportunity to double up on a win and exit the trade faster, because the option price doesn't have as far to go to score a win.