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

Bank of America Corp was targeted by a bear call spread strategist today

by 5/5/2014 2:07 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). Dropping off the list since last time was General Electric Company (NYSE:GE).


Bank of America Corp option traders recently have been transitioning to the bearish side-- with the rate of put buying relative to call buying on the rise -- after a pair of fundamental follies sent the stock south. Meanwhile, in today's session, calls are outpacing puts by a margin of more than 2-to-1, but not all of the day's activity is of the traditional bullish variety.

Shortly after 10 a.m. ET on the Chicago Board Options Exchange (CBOE), one large block of 5,320 January 2015 16-strike calls traded at the bid price of $0.81, suggesting it was sold. Simultaneously, a symmetrical block of January 2015 17-strike calls went off at the ask price of $0.52, implying they were bought. Implied volatility ticked higher at both legs, hinting at the initiation of new positions. In other words, it appears a short call spread was established for a net credit of $0.29.

By implementing this neutral-to-bearish strategy, the speculator is ideally looking for BAC to be at or below $16 at the close on Jan. 16, 2015, allowing both calls to expire worthless, and the speculator to pocket the $0.29 collected as her full potential reward. What this spread strategist does not want to happen is for BAC to stage a sharp rally over the next eight-plus months. Even in this worst-case scenario, though, her maximum loss is limited to $0.71 per pair of calls, or the difference between the two strikes less the net credit.

As touched upon, BAC has been in a slump since notching a three-year peak of $18.03 roughly six weeks ago, with the downtrend only exacerbated by last month's bottom-line miss and accounting error that resulted in a suspended buyback and dividend program. All told, Bank of America Corp (NYSE:BAC) is down more than 16% from its March 21 milestone. This negative price action is continuing today, with the shares off 1.3% at $15.05, after sector peer JPMorgan Chase & Co. (NYSE:JPM) projected a 20% drop in second-quarter markets revenue.


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