Bank of America Options (BAC): Unusual Trading Activity

| March 29, 2012 | 0 Comments

BAC OptionsOptions in controversial Bank of America (BAC) continued to see a huge amount of unusual trading activity yesterday.

Bank of America stock closed up another 1.5% to $9.75, on its long way back from under $5.00 a share just a few months ago.

Over the last few trading sessions, BAC options have been amongst the most active across any other single stock, with close to $1 million contracts trading hands each day.

And yesterday was no different.

It’s obvious that some option traders are still bullish on this bank.

Early Wednesday morning, as a market correction seemed to be taking shape, one option trader purchased a bull call spread.

This strategy is simply the purchase of one call option and the simultaneous sale of another call option of a higher strike.

The trader zeroed in and purchased 25,000 call options of the April $10 strike for $0.25.  Seconds after, he sold an equal amount of the April $11 strike calls for $0.07.

Overall he invested $450,000 into these options.

Here’s what he’s looking for… come April expiration, if BAC can somehow close at or above the short calls’ strike price of $11, he’ll make $2,050,000.  That’s a hefty 5 to 1 payout.

Although this option trade looks enticing, I’d stay away from it.

I think this trader is presuming a lot.  Mainly, he’s disregarding the fact that BAC stock has tried numerous times to trade above $10 a share, just to fail every time.

In addition, the trader is not giving himself enough time for this trade to play out.  Especially when we’re staring at a possible short term market correction.  When this happens, banks are usually the first to roll over.

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.

The recent unusual option activity in Bank of America is most certainly due to its new pilot program for homeowners.

The pilot program released by Bank of America would put an end to distressed mortgages.  It would purchase home owners negative equity mortgages, turning the owner into a renter.

The problem with this program is that even if it works, it could take months to have any effect on the bank directly.

But we’ll wait and see.  This option trader obviously believes BAC is poised higher sooner rather than later.

For more detailed information on unusual options activity and how you can profit from it, be sure to sign-up for our daily newsletter, Options Trading Research.  It’s always 100% free and packed full of option trading ideas you can use immediately in your own portfolio.  Click here to subscribe for free.

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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.