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Bank of America Corp (BAC) LEAPS Buyer Anticipates Downside

But there's speculation the BAC buyer is long the stock, pointing to protection

by 6/27/2013 12:45 PM
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Bank of America Corp (NYSE:BAC) has experienced heavy trading in today's session, with over 201,000 options traded so far. Making up nearly one-quarter of that volume -- and two times that of the second most-traded option -- is the January 2014 11-strike put. All told, more than 50,000 contracts have traded at the strike, with all doing so at the ask price.

According to a source at Trade-Alert, a single customer bought the LEAPS to open for $0.45 each. Consequently, the breakeven price is $10.55, or the strike price minus the premium paid. At the same time, however, the commentary goes on to say that the puts are possibly protective in nature. This means the trader's outlook toward BAC remains bullish, and he'd rather see the shares trek northward from their perch at $12.90, than watch the puts land in the money.

Taking a step back... Bank of America has received an unusual amount of bearish attention of late. The stock's 50-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 0.42, which ranks in the 99th percentile of its 52-week range. This translates to the fact that puts have been bought to open over calls at a pace just under an annual high.

In addition, the brokerages covering BAC are pessimistically arrayed. Seventeen of the 25 analysts that rate the stock give it a "hold" recommendation or worse, compared to a mere eight "buys" or better. The bank's consensus 12-month price target is just $13.46, as well -- a modest premium to current trading levels.

Meanwhile, Bank of America Corp (NYSE:BAC) touched a two-year high of $13.99 about a month ago, in a display of technical strength. Furthermore, relevant to the LEAPS mentioned above, the stock has found a strong layer of support at the $11 level, which contained a pair of pullbacks earlier in the year.

Should BAC creep back toward its aforementioned peak, a round of analyst upgrades and/or price-target hikes could send shares to heights they haven't seen since early 2011.


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