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

Option players roll the dice on a Bank of America Corp bounce

by 6/3/2014 2:25 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).

Most

Bank of America Corp is hovering just south of breakeven this afternoon, with the shares off fractionally to trade at $15.25. This only highlights the equity's recent technical struggles, though, with BAC down more than 15% since tagging a multi-year peak of $18.03 in late March.

In the stock's options pits, call players have seemingly disregarded this negative price action, and today, calls are outpacing puts by a nearly 3-to-1 margin. Diving deeper reveals that both short- and intermediate-term traders are betting on BAC to move back to levels not seen since before the stock gapped lower in late April in the wake of an accounting error.

Specifically, short-term speculators are targeting the security's weekly 6/6 15.50-strike call, where 3,714 contracts are on the tape -- mostly on the ask side, suggesting they were bought. Implied volatility (IV) is up 2.6 percentage points, hinting at the initiation of new positions.

These call buyers will begin to profit if BAC settles north of breakeven at $15.53 (strike plus volume-weighted average price of $0.03) at this Friday's close, above which gains are theoretically unlimited. Should the stock expire south of the strike price, the most the speculators stand to lose is the initial premium paid. Delta for the call was last seen at 0.21, suggesting a slim 21% chance of an in-the-money finish at week's end.

Meanwhile, intermediate-term traders have even higher hopes for BAC, and are scooping up calls at the August 16 strike. This is the most active BAC option this afternoon, due in part to a large block of 2,934 contracts that traded earlier at an ask price of $0.29 apiece. Plus, IV ticked higher with the transaction, suggesting the purchase of fresh bullish positions.

The at-expiration breakeven mark for this further out-of-the-money strike is $16.29 (strike plus premium paid). Considering this Bank of America Corp (NYSE:BAC) option trader has given her bullish forecast some additional time to play out -- the series expires at the close on Friday, Aug. 15 -- delta on the August 16 call is docked at more optimistic 0.33.

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