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Bank of America Corp (NYSE:BAC - 10.47) was in rally mode yesterday, after sector peer Citigroup Inc. (NYSE:C - 36.40) announced it will be passing out 11,000 pink slips. The positive price direction did not go unnoticed by options players, who circled around the stock's calls on Wednesday. Around 872,000 contracts crossed the tape, representing more than three times the average daily volume for call options. Meanwhile, roughly 259,000 put contracts changed hands.
Short-term speculators zoomed in on BAC's 12/7 10.50-strike call. Of the nearly 92,000 contracts traded on this weekly option, 72% did so at the ask price, and both implied volatility and open interest were on the rise, making it safe to assume that new positions were initiated.
By buying these near-the-money calls to open for a volume-weighted average price [VWAP] of $0.08, speculators need BAC to finish above the $10.58 mark (the strike plus the average premium paid) by Friday, when these weekly options expire. This represents a slim premium to the stock's current perch.
Expanding the scope, long calls have been the preferred option for some time. During the past 50 sessions, speculators have bought to open 3.45 calls for every put at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio ranks higher than 94% of other such readings taken in the last year, suggesting bullish bets have been accumulated over bearish at a faster-than-usual clip in recent months.
The bullish positioning by option players is understandable, given BAC's impressive run on the charts. In 2012 alone, the stock has jumped 88.1%. The equity's recent run higher has been supported by its 10-week moving average, which has provided BAC with a firm foothold since mid-August. What's more, Wednesday's sector-related surge sent BAC to a new annual peak of $10.56.
Should the equity fail to topple the aforementioned breakeven level, the most yesterday's call buyers stand to surrender is the initial net debit paid.