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Bank of America Corp (BAC) Option Bulls Make a Bold Bet

Bank of America Corp has not traded north of $20 since November 2008

by 4/8/2014 11:17 AM
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Option Brief: Calls have taken the early lead over puts on Bank of America Corp (NYSE:BAC) today, with 79,000 calls exchanged, versus 18,000 puts. The most active strike by a mile is the June 20 call, and it appears a number of speculators are betting on BAC to rally through this round-number mark -- and into territory not seen since November 2008 -- in the near term.

More than 20,200 contracts have changed hands at this deep out-of-the-money strike, all of which have done so at the ask price, hinting at buyer-driven activity. (For comparison's sake, the next most active strike has seen 5,931 contracts traded.) Meanwhile, implied volatility at the June 20 call has ticked 0.8 percentage point higher, suggesting that some of the volume is a result of new positions being initiated. This theory is supported by data from the International Securities Exchange (ISE).

This bullish positioning by option traders isn't surprising, considering the banking giant has rallied nearly 34% year-over-year to trade at $16.36. Longer-term, the stock has enjoyed a lift higher from its 100-day moving average since August 2012, and this rising trendline has helped shares of BAC more than double in that time. The equity is testing this chart support in today's session, as the stock takes a slight dip on the back of last night's price-target adjustment at SocGen.

Looking ahead, Bank of America Corp has a handful of fundamental events on the horizon that could help move the stock. Most recently, the financial firm yesterday reached a settlement in a Miami federal court over allegations of "force-placed" insurance. BAC is also rumored to be close to settling with the Consumer Financial Protection Bureau over its credit-card practices. Meanwhile, federal regulators are scheduled to finalize bank leverage limits today.

Finally, Bank of America Corp (NYSE:BAC) will step into the earnings confessional bright and early next Wednesday. After exceeding analysts' expectations in each of the past three quarters, the stock has averaged a gain of 2.4% and 3.9% in the day and week, respectively, after reporting. For BAC's first quarter, Wall Street is calling for a profit of 5 cents per share -- a nickel less than the company's year-ago results.


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