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Most Active Options Update: Bank of America Corp (BAC)

Bank of America Corp option traders disregard pullback

by 3/28/2014 1:09 PM
Stocks quoted in this article:

The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest this afternoon is Bank of America Corp (NYSE:BAC).


Bank of America Corp is sitting out the day's broad-market rally, with the equity off 0.5% at last check to linger near $16.93. The shares are testing the support of their 10-week moving average, which -- along with its 20-week cohort -- has ushered BAC more than 100% higher since mid-2012. The technical slip hasn't stopped option traders from showing a preference for calls, with the contracts outpacing puts by a 2-to-1 margin. The most active strike is the April 18 call, and by the looks of it, a number of speculators are betting on a quick move to levels not seen in nearly four years.

More than 16,300 contracts have changed hands at this out-of-the-money strike thus far, three-quarters at the ask price, pointing to buyer-driven activity. Meanwhile, implied volatility has ticked higher, hinting at the initiation of new positions. Breakeven at the close on Thursday, April 17 -- when front-month options expire -- is $18.15 (strike plus volume-weighted average price of $0.15). Although BAC hasn't touched this level since May 2010, multi-year highs are not out of the question for a stock that hit a three-year peak of $18.03 last Friday.

Regardless of whether or not BAC tackles the $18 mark over the next three weeks, the most the speculators stand to lose is the initial cash outlay. According to the security's Schaeffer's Volatility Index (SVI) of 26%, which ranks lower than 55% of similar readings taken in the past year, BAC's front-month options are relatively affordable at the moment.

On the fundamental front, the banking concern is tentatively scheduled to report first-quarter earnings on Wednesday, April 16. The stock notched an impressive single-session gain of 2.3% in January following its fourth-quarter results. Elsewhere, Bank of America Corp (NYSE:BAC) on Wednesday settled its lawsuit with Fannie Mae and Freddie Mac, while yesterday, a federal magistrate judge moved to dismiss a separate mortgage-related lawsuit filed against BAC by the Justice Department. Most notably, perhaps, the Fed just approved BAC's first dividend hike since the financial crisis.


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