Here’s Why Bank Of America Is On Such A Tear Right Now

pole vault

Bank of America shares are up 22% since the year began.

And after watching the stock dip below $5, and seeing the bank get sued left and right last year, the only question is: how is that even possible?

One reason is simple: analysts are bullish on financials in 2012. Newedge’s Lawrence McDonald wrote in a recent note that increased transparency about bank liabilities will give analysts more insight as to Wall Street’s earnings power. That’s giving people hope that the sector will improve in general.

Remember though, the street was super bullish on financials at the beginning of last year and we all saw what happened. Maybe we’re experiencing that again, and this is the market reflecting people hoping against hope that the industry is going to turn around.

Right or wrong they picked the perfect poster child, because Bank of America would be the ultimate come-back kid.

But Fact Set, for one, estimates that Bank of America’s revenue will only grow by 2%. They’ll make a profit, though, by making some serious cuts. The bank started making them in Asia and is setting up for big cuts in the United States as well (they cut down their office space in NYC substantially).

Still, the big cost cutting hasn’t happened yet, and the lawsuits hanging over the bank’s head are still there. (We can’t forget Countrywide!) In fact, more legal problems will surely surface soon, stemming from an investigation by New York’s Department of Financial Services.

Plus, there are still questions about whether Bank of America has enough cash stored up to meet capital requirements and then some. It’s sold a bunch of assets — the China Construction Bank, for one — but has it sold enough? And if not, is it running out of things to sell?

So again. What’s the deal? Business Insider spoke to one options trader who thinks this magnificent run could actually just be a bunch of shuffling around. Basically, he explained, because Bank of America is so high volume with so many options to trade, prop traders are all over it. That makes for bullish looking volume but it’s probably day (or other short term) traders flipping options around.

Have your own theory about this? Email [email protected] or call 646-376-6015