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Bank of America Corp (BAC) Trader Rolls the Dice On More Upside

Bank of America Corp's May 15 calls were rolled up and out this morning

by 4/23/2014 11:23 AM
Stocks quoted in this article:

Calls have been the options of choice on Bank of America Corp (NYSE:BAC) in recent weeks, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). During the past 10 sessions, in fact, speculators have bought to open nearly five calls for each put on BAC. What's more, the resulting call/put volume ratio of 4.67 ranks in the 83rd percentile of its annual range, meaning long calls have been initiated over puts at a faster-than-usual clip.

It's more of the same in today's session, where calls are outpacing puts by a more than 6-to-1 margin. More than half of the day's intraday call volume comes at the hands of one speculator who appears to be upping the bullish ante on her outlook for the banking stock. Right out of the gate, one block of 10,000 May 15 calls changed hands at the same time a lot of 15,000 November 16 calls crossed the tape. Trade-Alert suggests the former were sold to close, while the latter were bought to open. In other words, this trader is rolling her bullish bet up one strike and out six months or so (and increasing the size of the wager), hoping for an additional rise for BAC.

With BAC trading near $16.33, the November calls are currently in the money. Based on the $1.31 premium paid for the calls, however, breakeven at expiration on Friday, Nov. 21, is $17.31 (strike plus the premium paid). Risk, meanwhile, is limited to the initial cash outlay, should BAC fail to maintain its perch atop $16 over the next several months.

On the charts, BAC has performed well in the long term, with the shares up about 35% year-over-year. More recently, the equity has been in a short-term slump since hitting a nearly four-year high of $18.03 in late March, off around 9.4%. This decline has been highlighted by the stock's 10-day moving average, which is becoming a key player in today's price action. Specifically, after closing above this trendline yesterday for the first time since April 1, Bank of America Corp (NYSE:BAC) is extending its lead north of here, possibly suggesting this former layer of resistance could now be switching to a more supportive role.


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