Unusual Options Activity: Bank of America (BAC)

Shares of megabank Bank of America (BAC) hit a new 52-week high this week, even amid the latest market volatility. One trader sees the move higher, just a hair above the price the stock hit in June, as a sign that shares may be due for a drop.

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  • That’s based on the October 1 $43 puts. Expiring tomorrow, over 8,300 contracts traded compared to a prior open interest of 309, for a 27-fold jump in volume. The buyer of the puts paid $0.48.

    Shares are just over $43, a 52-week high for the stock, making this an at-the-money trade. The low price makes for a big potential winner, although the price of the option could rapidly change every hour the market remains open this week.

    Action to take: Bank shares have been bullish lately, with BAC shares clocking in an 80 percent gain over the past year. Shares trade at 13 times forward earnings, and the stock yields 1.9 percent. There’s a lot to like here, but in the short-term, a pullback could be likely.

    Traders who want to jump into a trade that expires tomorrow may like these October trades. For general market jitters in the next few weeks, consider a trade farther out, like the November $42 puts. They last went for $1.45, but have a little over 6 weeks to benefit from any meaningful drop in shares.

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