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).
Affiliation: Interactive Brokers
Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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