Option Bulls Blitz as Bank of America Corp (BAC) Breaks Out to New Highs

Bank of America Corp (NYSE:BAC) has been heavily targeted by call players, as the bank stock breaks out to new highs

Dec 1, 2016 at 3:47 PM
facebook X logo linkedin

Bank of America Corp (NYSE:BAC) has been heavily targeted by weekly options traders in recent weeks, with the skew notably tilted to the call side. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, 595,702 weekly calls have traded on the bank stock over the past 10 sessions, compared to 210,928 puts. This trend in BAC's options pits is continuing today, with 603,000 calls on the tape -- 1.8 times the average intraday pace -- versus 251,000 puts, double what's typically traded at this point in the session.

Most active is BAC's weekly 12/2 21.50-strike call, where 42,483 contracts have crossed. There looks to be a mix of buying and selling activity occurring, and with open interest enough to cover volume, it's not easy to tell whether positions are being opened or closed. Meanwhile, more clear-cut activity is seen at the security's weekly 12/2 22-strike call, where 35,457 contracts have traded. It seems likely that speculators are buying to open the calls, betting on BAC stock to extend its trek into multi-year-high territory through expiration at tomorrow's close -- a time frame that includes tomorrow's potentially market-moving nonfarm payrolls report.

More broadly, calls outpace puts across all of the bank stock's options series, with roughly 4 million BAC calls currently outstanding. However, this ranks in the paltry 28th annual percentile, indicating the shares have been considerably less popular among call players than they were back in mid-January, when call open interest topped out at an annual high of around 5.7 million contracts outstanding. On the flip side, put open interest of 3.2 million contracts is docked in the 86th percentile of its 52-week range -- around 427,000 contracts shy of its 12-month peak, set last December.

Nevertheless, the demand for BAC calls over puts is evident in the stock's implied volatility skew of 6.9% -- in the low 3rd percentile of its annual intraday range. In other words, BAC call options have become more expensive than put options. As a point of comparison, this metric hit an annual peak of 24.7% on Nov. 7 -- the day before the U.S. presidential election, and two days before bank stocks began an epic post-election surge.

In fact, since its Nov. 8 close squarely at $17, shares of BAC have rallied almost 26%. Today, the stock is up 1.3% at $21.40, and earlier hit an eight-year high of $21.94. Nevertheless, shares of Bank of America Corp (NYSE:BAC) -- along with the broader Financial Select Sector SPDR ETF (XLF) -- remain overbought, with BAC's 14-day Relative Strength Index (RSI) last seen at 78.9. Simply stated, a short-term pullback isn't out of the question.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.

Unlock Weekend Profits with Chris Prybal's Favorite Strategy Up +487.5% in 2024

With the markets going left, right, and sideways, you need to have a plan now more than ever. 

Expert Trader Chris Prybal is no stranger to volatility, and has mastered finding big stock rallies while other traders aren't looking over the weekend. Rallies that produced gains like +207% on RTX calls, +236% on MARA calls, and +238% on NET calls.

A few simple moves on Sunday at 7pm could be the “Secret Sauce” your portfolio needs to not just stay afloat, but make unprecedented gains in this turbulent market.

Don’t sit on the sidelines, beat the market with Chris Prybal's strategy. Join him now!