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The shares of Bank of America Corp (NYSE:BAC - 11.62) are testing support atop their 10-week moving average, which has ushered the stock roughly 50% higher since early August. Despite the security's longer-term uptrend, though, some options speculators are rolling the dice on an extended pullback in the short term.
At last check, BAC has seen about 115,000 puts change hands -- nearly three times its average intraday put volume. Attracting notable attention is the weekly 2/22 11.50-strike put, which has seen close to 14,400 contracts exchanged. Most of the puts have traded at the ask price, and implied volatility is more than 7 percentage points higher, hinting at buy-to-open activity.
By purchasing the puts to open, the buyers expect BAC to breach the $11.50 level by tomorrow's closing bell, when the weekly options expire. More specifically, the puts crossed at a volume-weighted average price (VWAP) of $0.09, meaning the buyers will reap a reward if BAC sinks beneath the $11.41 level (strike minus VWAP) by the end of the week. The maximum risk on the trade, meanwhile, is the initial premium paid for the puts.
Elsewhere, it looks like one option bear may be rolling his position to a lower strike. Right out of the gate, symmetrical blocks of 10,000 contracts changed hands at the weekly 3/8 11.50- and 12-strike puts. The now in-the-money puts crossed at the bid price of $0.55, suggesting they were sold, while the near-the-money puts traded at the ask price of $0.27, implying they were likely bought. Furthermore, volume has exceeded open interest at the weekly 11.50 strike, while implied volatility on the 12-strike put is trending lower. Against this backdrop, it seems the investor cashed in his chips by liquidating the 12-strike puts, and used some of the proceeds to buy lower-strike puts in the same series.
Broadening our sentiment scope, we find that BAC is no stranger to skepticism in the options pits. The stock's Schaeffer's put/call open interest ratio (SOIR) of 1.03 stands just 1 percentage point shy of a 52-week peak, implying that near-term options players have rarely been more put-biased during the past year.
What's more, that pessimism is prevalent among the brokerage bunch, too. Despite outperforming the broader S&P 500 Index (SPX) by 11 percentage points during the past three months, BAC boasts just nine "buy" or better endorsements, compared to twice as many "hold" or worse suggestions.
Should the equity bounce back and resume its journey higher, a reversal in sentiment in the options arena, or a capitulation by the bearish analysts, could lure even more buyers to the table.