Bank of America Corp (BAC) Option Traders Eye a Short-Term Surge

Both monthly and weekly option traders expect Bank of America Corp (NYSE:BAC) to move higher

by Karee Venema

Published on Mar 15, 2016 at 10:06 AM
Updated on Jun 24, 2020 at 10:16 AM

Bank of America Corp (NYSE:BAC) has had its fair share of technical troubles this year, but this has done little to sway the relatively bullish bias in BAC's options pits. For instance, BAC's Schaeffer's put/call open interest ratio (SOIR) of 0.61 rests below 63% of all comparable readings taken in the past year, meaning short-term speculators are more call-heavy than usual toward the financial stock

Even more telling is BAC's front-month gamma-weighted SOIR of 0.42, which indicates near-the-money calls more than double puts in the March series of options. Drilling down, peak front-month call open interest of 129,504 contracts is found at the March 14 strike. According to the International Securities Exchange (ISE), the majority of contracts have been bought to open here in recent months, meaning speculative players have been betting on BAC to settle north of $14 at this Friday's close, when front-month options expire.

The 14 strike has also been popular among back-month option traders, with BAC's April 14 strike seeing the biggest rise in open interest over the past 10 sessions. Specifically, 111,303 contracts have been added. Per data from the ISE, a healthy portion of these were bought to open, as traders eye a move above $14 by expiration at the close on Friday, April 15.

Meanwhile, in yesterday's trading, option traders initiated 22,550 new positions at BAC's weekly 4/22 14.50-strike call, and by the looks of it, the majority of the action was of the buy-to-open kind. Considering BAC hasn't traded north of $14.50 since late January, delta on the out-of-the-money call is docked at a low 0.30. Regardless of where BAC settles at expiration, though, the most the call buyers stand to lose is the initial premium paid.

This morning, BAC has shed 1.2% to trade at $13.47 -- widening its year-to-date deficit to 20% -- and in danger of losing its short-term foothold atop its 50-day moving average. Off the charts, Bank of America Corp (NYSE:BAC) announced yesterday it is laying off a number of bankers in its Brazil- and Chile-based divisions.

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