Bank Of America Options (BAC): Unusual Trading Activity
Options in the controversial Bank of America (BAC) saw a flurry of option activity yesterday and a follow through into this morning.
Bank of America stock closed down yesterday and is down another 1.0% this morning to $9.20, on its long way back from under $5.00 a share just a few months ago.
Over the last few months, BAC options have been amongst the most active across any other single stock, with close to $1 million contracts trading hands each day.
And today seems like it’s going to be no different.
By simply looking at the option chains, it’s obvious that most option traders are still bullish on this bank.
Just early this morning, as a market correction seemed to be taking shape, one option trader purchased an enormous block of call options.
Let’s see which ones…
This trader zeroed in and purchased 16,000 contracts of the BAC October $9 strike call options for an average price of $0.50.
This puts his overall investment in this trade at a whopping $800,000.
And with no other option trade associated with this block, his earnings potential can go to the moon!
I’m even thinking about jumping on board this one, the risk is limited and reward is unlimited. Not bad.
So, what about the company?
As you all know, Bank of America provides various banking and financial products and services to individual consumers, small-and middle-market businesses, and institutional investors. The company also services corporations and governments in the United States as well as internationally.
While Bank of America needs more capital to comply with Basel III, it has the time and earnings power to do so without turning to the equity markets. This is certainly a catalyst for the stock to remain elevated for the long-term.
In addition, many of Bank of America’s past problems were a result of poor capital allocation decisions. But now the company’s size, coupled with increased regulatory scrutiny, have reduced this risk going forward.
And lastly, advances in information technology may finally make a universal banking model not only achievable, but also preferable in the eyes of consumers. Remember, on-line banking is the wave of the future.
In the meantime, we’ll wait and see. This option trader obviously believes BAC is going higher sooner rather than later.
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Safe Trading,
Marcus Haber
Category: Unusual Options Trading Activity
