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Bearish trading activity is running hotter than usual on Bank of America Corp (NYSE:BAC) once again, as around 56,000 puts have switched hands so far today. This a 30% mark-up over the norm, and about 4,000 more than the number of calls exchanged. Also of note, the stock's 30-day, at-the-money implied volatility (IV) has climbed 0.7 percentage point, or 3%, from Friday's close to 23.8%.
The clear front-runner is the weekly 8/30 14.50-strike put, where nearly 12,600 contracts have crossed at a volume-weighted average price (VWAP) of $0.09. Meanwhile, the majority of these near-the-money puts traded at the ask price, and IV has ticked 2.2 percentage points higher, hinting at the initiation of fresh bearish bets. What's more, data from the International Securities Exchange (ISE) confirms that at least some of the volume consists of buy-to-open activity.
In order for speculators to secure a profit from their purchased puts, BAC must fall below the breakeven rail of $14.41 (strike price minus the VWAP) by this Friday's close, when these weekly options expire. This reflects a drop of 1.4% from the equity's present perch at $14.62. Still, even if the stock remains above the strike price throughout the puts' lifetime, today's buyers shouldn't lose too much sleep over it. In fact, the equity's Schaeffer's Volatility Index (SVI) of 23% ranks lower than all but 12% of comparable readings taken during the past 12 months. In other words, the modest net debit paid for these near-term options -- which also represents the maximum loss on the play -- was relatively cheap, historically speaking.
Bank of America (NYSE:BAC) has performed well on the technical front, gaining about 26% in 2013, and advancing close to 80% during the past 52 weeks. Additionally, the shares tagged a new two-year high of $15.03 on July 23, and their subsequent pullback was cushioned by their 40-day moving average, which has acted primarily as a floor since June 2012.