How One Bank of America Corp (BAC) Option Bull Banked $8.8 Million

Amid a post-election surge in financial stocks, one Bank of America Corp (NYSE:BAC) rolled her February 17 calls up to the 20 strike

Nov 15, 2016 at 3:17 PM
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Call volume is accelerated in Bank of America Corp's (NYSE:BAC) options pits today. By the numbers, around 499,000 call options have traded -- two times what's typically seen at this point in the day, and on track to finish in the 97th percentile of its annual range. As a point of comparison, just 141,000 BAC put options are on the tape. Drilling down, BAC's top two options trades are the February 17 and 20 calls, where it looks like one speculator is closing out of her massive winning position, and betting on even more upside for the bank stock.

Specifically, one option trader apparently sold to close a 40,025-contract lot of February 17 calls for $2.91 apiece, which Trade-Alert suggests was initially opened on Oct. 21 for $0.70 cents each. If this is the case, the speculator banked a cool $8.8 million profit [($2.91 - $0.71) * number of contracts * 100 shares per contract). The trader then used this profit to purchase a symmetrical block of February 20 calls, betting on a breakout above the round-number $20 by February options expiration.

More broadly speaking, options traders have been quick to initiate long calls over puts in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), BAC's 50-day call/put volume ratio of 4.11 ranks just 6 percentage points from a 52-week peak.

Echoing this call-skewed backdrop is BAC's front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 0.78. What this shows is that near-the-money call open interest outweighs put open interest among options expiring in three months or less.

This lofty accumulation of call open interest could present a short-term speed bump for BAC, especially considering there are more than 21,000 contracts outstanding at the just overhead November 20 strike. In fact, BAC closed at $20.08 last Friday, and was last seen down 0.05% at $19.99. Longer term, Bank of America Corp (NYSE:BAC) is up 19% year-to-date, most recently helped by a post-election rally in the financial sector.

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