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Following this morning's price-target hike to $16 from $15.50 at J.P. Morgan Securities -- the brokerage firm also issued an upwardly revised outlook for sector peer Wells Fargo & Co (NYSE:WFC) -- Bank of America Corp (NYSE:BAC) has seen heavy activity cross at its October 15 call. So far, at this strike, almost 17,000 contracts have changed hands at a volume-weighted average price (VWAP) of $0.24. The lion's share of the contracts -- including several mid- and large-sized blocks -- went off at the ask price, while implied volatility has ticked higher, pointing to the initiation of fresh long calls. In addition, data from the International Securities Exchange (ISE) confirms at least some of this is buy-to-open activity.
On the charts, BAC -- docked at $14.53 -- has climbed 57.4% during the past year, and today's call buyers are banking on the stock to tack on another 4.9% over the next four-plus weeks. Specifically, the options players anticipate BAC will topple the breakeven price of $15.24 (strike price plus the VWAP) by the close on Oct. 18, when the soon-to-be front-month options expire. This resides in territory BAC has not explored in two years. Should BAC fail to make the expected jump past the 15 strike, the most today's call buyers risk losing is the initial premium paid -- which was actually relatively expensive, considering the option's implied volatility of 25% towers over BAC's one-month realized (historical) volatility of 15.5%.
Of note, Bank of America Corp (NYSE:BAC) is scheduled to enter the earnings confessional ahead of the opening bell on Oct. 16, two days before the October options expire. Analysts, on average, are calling for a per-share profit of 19 cents, which represents upside to last year's flat results. Although BAC has bested analysts' bottom-line expectations in six of the last eight quarters, its shares have dropped an average of 1% in the three days following the report.
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