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

Bank of America Corp (BAC) options bears are extending their bets

by 4/28/2014 1:23 PM
Stocks quoted in this article:

The 20 stocks listed below have seen the highest total options volume over the course of the last 10 trading days. Data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White, and highlighted names are new to the list since the last study was run. One stock seeing notable activity amid its lackluster price action is Bank of America Corp (NYSE:BAC). Falling off of the list since last time were Cisco Systems, Inc. (NASDAQ:CSCO) and Alcoa Inc (NYSE:AA).

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BAC shares are in a bit of hot water with traders today, after the company said a miscalculation would result in a suspension of its buyback program. What's more, a planned dividend increase has now also been put on hold. The stock has dropped 5.5% to $15.08 -- bringing it into losing territory for 2014 -- and the options pits have been flooded with activity, with total volume quadrupling the typical pace. In fact, BAC is the most active equity (and second most active security) on the options front so far today.

The two largest trades crossed the tape shortly after 10 a.m. ET, and appear to be related, per data from the International Securities Exchange (ISE) and Trade-Alert. Diving into the details, a block of 16,500 June 15 puts was evidently sold to close on the ISE for the bid price of 45 cents per contract. These long puts were likely initiated on March 21 for 14 cents apiece, and have yielded a tidy profit of roughly 220% in the subsequent five-plus weeks.

Instead of taking the money and running, however, this put player is rolling down his bet to the June 13 strike. A block of 16,500 of these puts traded simultaneously, for 7 cents each (which was the ask price at the time). Volume exceeds open interest at the strike, and data from the ISE confirms a customer bought these out-of-the-money puts to open.

Breakeven for the newly established bets is $12.93, or the strike price less the premium paid. The stock would need to drop more than 14% between now and Friday, June 20 (when these options expire), to breach this level. As demonstrated today, however, the put buyers may opt not to hold the options until then. Delta for the June 13 put currently stands at negative 0.073 (versus negative 0.032 on Friday), meaning the option will gain 7.3 cents in value for every dollar BAC loses. Conversely, the option will lose 7.3 cents for every dollar advance in BAC.

Bank of America Corp (NYSE:BAC) shares have been in pullback mode since March 21, when they touched a near-four-year intraday peak of $18.03. In the ensuing weeks, the shares have depreciated 16.4%, so a further drop of 14% is certainly not out of the question.


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