Pre-Earnings Option Bulls Blitz Bank of America Corporation (BAC)

Bank of America Corp (BAC) will report earnings ahead of Wednesday's open

by Karee Venema

Published on Apr 13, 2015 at 3:07 PM
Updated on Apr 20, 2015 at 5:32 PM

Financial firms are in the earnings spotlight this week, and Bank of America Corp (NYSE:BAC) is slated to take its turn on stage ahead of Wednesday's open. Options traders have grown increasingly optimistic ahead of the big event, per BAC's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio, which has risen to 5.08 from 4.16 over the course of this month. What's more, the current ratio ranks in the 68th annual percentile, meaning calls have been bought to open over puts at a faster-than-usual clip.

Today, calls are trading at 1.9 times what's typically seen at this point in the day, and are outpacing puts by a nearly 5-to-1 margin. Most active is BAC's April 16 call, which appears to be seeing some buy-to-open activity -- a theory echoed by data from the ISE. By initiating the long calls, traders expect BAC to power past $16 by this Friday's close, when front-month options expire.

This optimism has spilled outside of the options pits, as well. Among analysts, 11 have levied a "buy" or better rating toward BAC, versus seven that maintain a "hold" or worse recommendation. Meanwhile, BAC's consensus 12-month price target of $18.40 stands at a 16.5% premium to current trading levels, and in territory not charted since April 2010.

Technically speaking, BAC has done little to warrant such confidence. Since hitting a four-year high of $18.21 on the last trading day of 2014, the security has shed 13.3% to trade at $15.78 amid continued pressure from its 60-day moving average. What's more, the shares have turned in a dismal post-earnings performance over the past four quarters, averaging a single-session loss of 3.3%. For Bank of America Corp's (NYSE:BAC) first quarter, Wall Street is calling for a profit of 29 cents per share.

Daily Chart of BAC Since December 2014 With 60-Day Moving Average

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