Unusual Options Activity: Bank of America (BAC)

Mega-bank Bank of America (BAC) has been a market favorite over the past year, beating the overall S&P 500 by nearly 50%. One trader sees shares trending even higher in the coming months.

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  • That’s based on the September $39 calls. With 104 days until expiration, 4,696 contracts traded compared to a prior open interest of 159, for a 30-fold rise in volume on the trade. The buyer of the calls paid $2.38 to make the bullish bet.

    Bank of America shares recently traded for about $39.70, meaning the option is already about $0.70 in-the-money. Shares are also right at their 52-week high of $40.19.

    The bank’s shares have fared better than the company itself, which saw earnings drop nearly 20% in the last 12 months.

    However, with shares trading at 12 times forward earnings, shares still look undervalued compared to the rest of the market.

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  • Action to take: Shares are in an uptrend, which can likely continue through the summer. Today’s buyers could see low-double-digit returns in shares from here.

    Bank of America also pays a 2.4% dividend at current prices.

    For traders, the September $39 calls could see mid-double-digit returns, given that the trade is already slightly in-the-money.

    More aggressive investors may want to use a strike price out of the money, such as the $42 calls, which last traded for about $1.05.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.

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