Unusual Options Activity In Bank Of America $BAC

| July 22, 2015 | 0 Comments

Financial InstitutionUnusual Options Activity In Bank Of America $BAC

As many of you know, unusual options activity can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.

This is something professional options traders pay a lot of attention to, and for good reason…  Unusual options activity can “tip off” big moves in a stock, either up or down.

So let’s take a look at some ‘interesting’ activity that caught our eye this week…

Bank of America $BAC is one of the world’s largest banks.  The company has a market cap of just under $200 billion and earns $10 billion a year in profits.  For a good description of the company, follow the link.

$BAC is trading at $18.07, up 2% for the year.  That’s just 1% below the 52-week high and 23% from the 52-week low.

So what does unusual options activity in BAC tell us?

The financial sector got hit pretty hard during the height of the Greek crisis.  Banks and other financial institutions were more exposed than most other US sectors to Greek/European debt issues.  As such, several financial companies sold off due entirely to the macro-based news.

However, most of the major banks like BAC had very strong fundamentals at the time.  They were being punished by investors for events out of their control, which may or may not have any impact on their bottom lines.  Typically, this presents a buying opportunity.

Here’s the deal…

This week, a trader bought a large amount of calls on BAC.  Keep in mind, a call option makes money when the underlying stock goes up.

Specifically, a trader purchased 49,000 August 18.50 calls for $0.19.  The total cash outlay for the calls was $931,000 which is also the max loss.  Breakeven point for the trade is $18.69.

Typically a call trade like this, with about a month until expiration, is a pure bullish bet.  The call buyer is expecting BAC to continue higher after rebounding from the financial sector selloff.  Strong bank earnings have also propelled bank stocks higher now that the Greece debt crisis is past (for now).

Here’s the chart of $BAC:

unusual option activity, a chart of BAC

As you can see, BAC found support at the 200-day moving average (green line) after the Greek crisis hit its peak.  The stock has even blown through the 50-day moving average with the sector showing strong signs of improvement.

Even though BAC is just 1% from its 52-week highs, the stock would probably have been higher by now if not for the Greek-induced selloff.  The financial sector looks to be a good bet moving forward, and BAC is still attractively priced.  The trader is betting about $1 million that BAC isn’t done moving higher.

More Options Trading Ideas…

Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.

We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!

Yours in Profit,

Gordon Lewis

Note: Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com.  You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.

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Category: Unusual Options Trading Activity

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.