Bank of America Corp (NYSE:BAC) may very well be an unexpected beneficiary of the Greenland fiasco. While broader economic concerns have weighed on BAC stock, the geopolitical drama surrounding proposed U.S. control of the autonomous territory hasn't helped assuage fears. However, the anxieties themselves lower the perceived probability of upside. Therefore, if true contrarian justification exists, that could be an opportunity — and I believe justification does exist.

When the market reopened on Tuesday following the Martin Luther King Jr. Day holiday, it responded to President Donald Trump's aggressive stance toward Europe. In particular, Trump threatened key European partners with additional 10% tariffs starting Feb. 1, with the possibility of rising to 25% from June if Greenland negotiations falter. What made matters worse was that the president previously refused to rule out the use of force.

Earlier today at the World Economic Forum in Davos, Trump reiterated his position that Greenland remains a national security priority for the U.S. and that negotiations must proceed. However, he did extend an olive branch in that he excluded military action as one of the potential pathways.

Unsurprisingly, the market did respond positively to Trump's clarifying remarks, which also benefited BAC stock. However, the impact was relatively muted compared to the severe fallout in the previous session. Naturally, the concern is that even if a kinetic conflict won't erupt, an economic one could easily disrupt global markets, despite assurances to the contrary.

Still, this matter represents an almost-perfect example of the so-called TACO trade, an acronym for "Trump Always Chickens Out." As I said yesterday, someone would likely convince the administration to walk back its imprudent rhetoric — and what do you know? Just a day later, Trump walks back the force threat.

Of course, no one can say how this geopolitical drama will play out. But with the fear still fresh, there may be a contrarian opportunity at hand.

BAC Stock Looks To Reverse Its Losing Streak

One of the best measures for understanding market sentiment is to look at the so-called volatility skew for the options chain that you're targeting. Under academic language, volatility skew shows how implied volatility (or the market's expected price swings) differs across strike prices on the same expiration date.

I didn't get it either. Here's the quick-and-dirty definition: you're looking for which side of the curve is more inflated. In the case of BAC stock for the Feb. 20 expiration date, the puts are obviously more excited than the calls. And that means more traders are paying for downside protection or outright betting on a bearish outcome.

Does that mean that BAC stock is doomed? Not necessarily because the smart money may be intelligent but it's not prescient. People, even the smartest folks in the room, can be caught off guard because the market is the ultimate arbiter — and it simply does not give a hoot what anyone thinks.

Now, under the standard Black-Scholes model, the market is expecting a price range between $50.06 and $55.04, which represents about a 4.73% high-low spread relative to the current spot price. That's not particularly helpful for us as debit-side traders because it's the equivalent of saying BAC stock could move up modestly or down modestly.

What we need is a second-order analysis and that's where the Markov property comes into view. Under Markov, the future (behavioral) state of a system depends solely on the current state. Mathematically, that's a fancy way of saying that context changes everything.

And what is the immediate context of BAC stock? In the trailing 10 weeks, BAC printed only four up weeks, leading to an overall downward slope. That's a rare quantitative setup for the big bank. Better yet, this 4-6-D sequence historically tends to resolve higher.

Using past analogs from January 2019, we would expect BAC stock to land between $51 and $56 over the next 10 weeks. Further, probability density would likely peak between $53 and $54, providing a much tighter target range.

What's really interesting, though, is that over the next week, BAC stock would likely push for the $54 price target and over time, density would likely shift toward $53. It's possible that, given the heated geopolitical drama, BAC's anticipated rise will be more of a slow burn than a slingshot.

Going The Opposite Direction

With volatility skew shifting hard to the put side, the calls happen to be relatively underpriced. That means you have a solid opportunity for sizable rewards if you take the opposite-side wager. Better yet, thanks to the second-order Markovian analysis above, we now know that the structural context is bullish, not bearish.

With that in mind, I'm looking at the 52.50/54 bull call spread expiring Feb. 20, 2026. This wager requires BAC stock to rise through the $54 strike price at expiration, which appears to be statistically realistic. If so, the trader may receive a profit of $75 on a net debit of $75, representing a 100% payout. Breakeven lands at $53.25, thereby adding to the trade's probabilistic credibility.

What should also provide a general sense of confidence in BAC stock is that it naturally has an upward bias. So, even under any other context, a bullish trader buying BAC would probably not be a bad decision. However, with the market under fear, the calls have more relative mileage per dollar at risk.

Therefore, if you have a reason to bet on BAC stock — and I would argue that we do — the incentive lies with the optimist.

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