Options Brief: Bank of America (BAC)

BAC – Bank of America Corp. – One long-term bullish options investor appears to have purchased a large-volume ratio call spread in the January 2011 contract to position for Bank of America’s shares trade at a substantially higher price by expiration day. BAC’s shares rallied nearly 4.00% during the first half of the trading session to an intraday high of $13.89, but are currently up a lesser 2.75% in late afternoon trading to stand at $13.73 as of 2:50 pm (ET). It looks like the investor purchased 20,000 calls at the January 2011 $15 strike for an average premium of $1.10 each, and sold 40,000 calls at the higher January 2012 $17.5 strike for premium of $0.40 apiece. The net cost of the transaction amounts to $0.30 per contract, thus positioning the trader to make money if Bank of America’s shares rally 11.4% over the current price of $13.73 to surpass the effective breakeven point on the spread at $15.30 by January 2011 expiration. The investor stands ready to accumulate maximum potential profits of $2.20 per contract should BAC’s shares jump 27.45% in the next 6 months to settle at $17.50 at expiration next year. The overall reading of options implied volatility on the financial services firm fell 8.1% to 35.73% just before 3:00 pm (ET).