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Bank of America Corp (NYSE:BAC) has spent the summer churning between $15 and $16 -- currently the sites of its 320-day and 140-day moving averages, respectively. At last check, the stock was sitting near the lower end of this range at $15.22. One group of optimists on Monday, though, bucked the recent trend in BAC's options pits and bet on the financial firm to rally through the upper end of this range over the next five weeks.
Specifically, the September 16 call was the most active BAC option yesterday, with 32,921 contracts on the tape at the close. The majority of these crossed at the ask price, and open interest rose the most of any other strike overnight, making it safe to assume new positions were purchased.
The volume-weighted average price (VWAP) for the out-of-the-money calls was $0.16, making breakeven at the close on Friday, Sept. 19 -- when the back-month options expire -- $16.16 (strike plus VWAP), with gains theoretically unlimited north of here. Losses, meanwhile, are limited to 100% of the premium paid, should Bank of America Corp (NYSE:BAC) settle south of the strike at expiration. Based on BAC's Schaeffer's Volatility Index (SVI) of 22% -- which ranks in the bottom one-third of its annual range -- these traders can rest easy knowing premium on these short-term options is relatively inexpensive at the moment.