The $7.4 Million Bearish Bank of America Corp (BAC) Bet

It looks as if one options trader bought a massive block of Bank of America Corp's (NYSE:BAC) weekly 5/13 15-strike puts earlier

by Karee Venema

Published on May 10, 2016 at 3:42 PM
Updated on Jun 24, 2020 at 10:16 AM

Put buyers have been active in Bank of America Corp's (NYSE:BAC) options pits in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, BAC stock's 10-day put/call volume ratio of 0.35 rests higher than 79% of all comparable readings taken in the past year.

It's more of the same in today's session, with BAC put options trading at 1.6 times the average intraday pace. In fact, the stock's put/call volume ratio of 1.66 is docked at an annual high. By far, the most active BAC option is the weekly 5/13 15-strike put, due largely to a 100,000-contract block that, according to Trade-Alert, was bought to open earlier for $7.4 million (number of contracts * $0.74 premium paid * 100 shares per contract).

By purchasing these in-the-money puts to open, the options trader is betting the bank stock will settle south of $15 at Friday's close, when the weekly series expires. More specifically, breakeven for the put buyer is $14.26 (strike minus premium paid). Profit will accumulate on a move south of here, while losses are limited to the initial premium paid, should BAC end the week north of $15.

Looking at the charts, the $15 level has given BAC quite a headache this year -- capping the stock's late-April rally, and sending the shares to their current perch at $14.29. Longer term, Bank of America Corp (NYSE:BAC) has shed nearly 23% since topping out at a five-year high of $18.48 last July, yet analysts remain enamored with the stock. In fact, 80% of brokerages maintain a "buy" or better rating on BAC, with not a single "sell" to be found. Should the shares continue to struggle, a round of downgrades could exacerbate BAC's technical troubles.

BAC daily chart

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