Options Recap: Can a Megabank Keep Running?

Options Recap: Can a Megabank Keep Running?

Bank of America (BAC) had a monster rally this week, and options traders are looking for the lender to keep running higher.

Here’s a breakdown of a big transaction detected late yesterday morning in BAC:

  • A block of 23,000 March 26 calls was sold for $2.80 and an equal number of March 29 calls were bought for $0.81. Volume was below open interest at both strikes, which indicates an existing bullish call spread was closed.
  • At the same time, the trader bought 23,000 March 30 calls for $0.43 and sold a matching number of March 31s for $0.19. This time, it looks like a new bullish spread was opened.

What’s going on? Owning calls fix the price where a security can be purchased, while selling them generates income. Investors can combine the two strategies into a spread. That lets them capture a move between two prices for a fraction of the cost, resulting in potentially significant leverage. See our Knowledge Center.

Bank of America (BAC), with 200-day moving average and $31 level marked.

BAC rose 1.90 percent to $28.99 yesterday. It had its biggest gain in six years the previous session, up 7.2 percent, after a series of business improvements fueled blowout quarterly results.

Thursday’s transaction apparently made money from the rally, and now the trader is looking for BAC to keep running toward $31 by mid-March. He or she collected $1.99 from closing the initial spread and paid $0.24 to open the second position. They now stand to collect another $1 if the higher price is reached.

Overall options volume in the stock was about twice its average over the last month yesterday, with calls outnumbering puts by a bullish 3-to-1 ratio.

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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.