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Option Brief: Bank of America Corp (NYSE:BAC) on Friday ran headlong into its descending 10-day moving average, where a swift rejection had the financial firm settling the session down 1.3% at $14.74. With this trendline resting at $14.99, a number of option speculators bet on the $15 area to hold as a level of resistance over the next two weeks.
Specifically, the most active contract in BAC's options pits on Friday was the weekly 5/23 15-strike call. Of the 20,272 contracts traded here, 80% changed hands at the bid price, pointing to seller-driven activity. Meanwhile, open interest increased the most of any strike over the weekend, making it safe to assume new positions were initiated.
By playing this neutral-to-bearish strategy, traders are expecting BAC to remain south of $15 through the close on Friday, May 23, when the weekly options expire. In this best-case scenario, the calls will expire worthless, and the speculators can retain the initial net credit as the full potential reward. According to Trade-Alert, the volume-weighted average price for the calls was $0.13.
On the charts, Bank of America Corp spent the majority of last week churning south of the $15 mark. However, this dreary price action only highlights the equity's recent technical struggles, with the shares off roughly 18% from their March 21 multi-year peak of $18.03.
Off the charts, Bank of America Corp (NYSE:BAC) was slapped with a price-target cut from Jefferies overnight. With the consensus 12-month price target of $17.20 standing at a stiff 16% premium to the stock's current perch at $14.84, the door is wide open for analysts to continue to downwardly adjust their outlooks. From a contrarian perspective, this could create additional headwinds for BAC down the road.