Options Brief: Bank of America (BAC)

BAC – Bank of America Corp. – BAC’s shares have spent the better part of the trading day vacillating about Thursday’s closing price of $15.46. Currently the financial firm’s shares are flat at $15.46 as of 12:55 pm (ET). Options activity on the stock has been relatively slow thus far today, but there is one transaction in the November contract that caught our attention. It looks like one wary options trader purchased a debit put spread, buying approximately 10,000 puts at the November $15 strike for an average premium of $1.62 apiece, and selling about the same number of contracts at the lower November $11 strike for an average premium of $0.48 each. The average net cost of the long-term bearish transaction amounts to $1.14 per contract. Thus, the put player is prepared to profit should shares of the underlying stock plunge 10.35% from the current price of $15.46 to breach the average breakeven point on the spread at $13.86 by November expiration. The transaction yields maximum potential profits of $2.86 per contract if BAC’s shares plummet 28.85% to $11.00 in the next five months to expiration day. If the investor is utilizing the spread to hedge a long position in the underlying shares, protection kicks in beneath the same $13.86 breakeven price described above, and maxes out if shares trade beneath $11.00.

About Andrew Wilkinson 1023 Articles

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.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

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