BAC – Bank of America Corp. – The drama doesn’t seem to stop at Bank of America after last week’s earnings report helped pole-axe the stock below the early July lows. Today has seen another 4.2% off the value of the company and at the day’s worst level of $13.30 saw put buyers come in adding to the bearish tone. Using the November contract investors honed in on the $10.00 strike paying around 40 cents to lock into selling rights, while in-the-money puts commanded a $1.20 premium. However, at least one option strategist doesn’t think the bearishness will remain in place forever and used what appears to be a reversal combination to play out his view. Using January 2012 expiration options around 10,000 calls appear to have been bought at the $15.00 strike in exchange for the same amount of sold puts. The in-the-money nature of the put side leaves the investor taking a $1.50 per contract credit in this case and is clearly positioning for better times ahead. Option implied volatility has hardly budged since earnings last week and today remains lofty at 44%. The 52-week low stands at $11.89.
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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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