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).

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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