Calls are the options of choice on Bank of America Corp
(NYSE:BAC) today, outpacing puts by a margin of more than 2-to-1. One of the more active strikes is the weekly 10/25 15-strike call, where about 9,900 contracts have changed hands, the majority at the ask price. With implied volatility (IV) up 6.7 percentage points, it appears a new batch of bullish bets is being initiated.
By purchasing the calls to open, traders expect BAC to finds its way back above $15 by week's end. Although it made a brief move north of this mark in late July when BAC hit a two-year high of $15.03, the stock has not traded above $15 for an extended period since January 2011. If the security is unable to accomplish this goal by Friday's close, the most the traders stand to lose is the volume-weighted average price of $0.03.
It's a small price to pay for the bullish outlook, per BAC's Schaeffer's Volatility Index (SVI) of 21%, which ranks lower than 96% of other such annual readings. In other words, the stock's short-term options are relatively inexpensive at the moment. Meanwhile, BAC's 30-day, at-the-money IV fell to a 52-week low of 20.4% today.
On the charts, BAC has tacked on a formidable 25% in 2013; however, the stock is down 0.8% in today's session to trade at $14.52. Fundamentally, reports are circling that the U.S. Department of Justice is seeking a billion-dollar settlement
from Bank of America for its alleged role in selling faulty mortgage bonds to Fannie Mae and Freddie Mac.
This article by Karee Venema was originally published on Schaeffer's Investment Research.
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