The Drama Doesn’t Seem to Stop at BofA

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.

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.

Visit: Interactive Brokers

Be the first to comment

Leave a Reply

Your email address will not be published.