Unusual Options Activity: Bank of America (BAC)

Shares of megabank Bank of America (BAC) have not only recovered from the drop last year, but have moved to new highs. One trader sees that trend continuing strong in the next month.

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  • That’s based on the May 28th $41 calls. Expiring in 30 days, over 12,350 contracts traded against a prior open interest of 580, for a 21-fold rise in volume. The trader paid about $0.60 to make the trade.

    With shares around $39.50, the option will move in-the-money on a further $1.50 rally in shares, or about 3.7 percent.

    Even with the bank’s 64 percent rise over the past year, shares till look reasonably valued. The company managed to double earnings and saw revenues rise by over one-third. And the bank managed to garner a 27 percent profit margins.

    Action to take: Investors may still like shares here with an eye towards the long haul. Shares pay 1.8 percent here, and the dividend can likely increase in time with regulatory approval.

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  • For traders, the move higher in the next month looks like a potential winner. The trade is inexpensive enough that a continued move higher could lead to triple-digit returns on the May call option. Given a 52-week high for shares of $40.38, the trade is a bet on new highs for the stock in the next month, a trade with sizeable upside and modest downside.

     

    Disclosure: The author of this article has no positions in the stock mentioned here, and does not intend to make a trade on this company after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.