Put Player Buys Bearish Spread Ahead of BAC Earnings

BAC – Bank of America Corp. – A sizeable ratio put spread initiated on Bank of America in late afternoon trading indicates one strategist is bracing for the price of the underlying shares to slip lower ahead of November expiration. The put player may be establishing the spread ahead of the financial services firm’s third-quarter earnings report ahead of the opening bell on October 19, 2010. BAC’s shares are currently down 0.15% to arrive at $13.16 with just under 45 minute remaining in the trading session. The trader picked up 20,000 puts at the November $13 strike for a premium of $0.51 each, and sold 40,000 puts at the lower November $11 strike at a premium of $0.08 apiece. Net premium paid for the transaction amounts to $0.35 per contract. The trader profits if shares in Bank of America decline another 3.9% to breach the effective breakeven price of $12.65 by November expiration. Maximum potential profits of $1.65 per contract are available to the ratio-spreader should shares fall 16.4% from the current price of $13.16 to settle at $11.00 at expiration day next month.

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.

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