Two words sum up the trading in Bank of America yesterday: fast money.
The financial behemoth opened higher, and the option action hit almost immediately as traders took positions in the short-term weekly calls that expire this Friday. OptionMonster's tracking systems show that activity was initially focused on the 12.50 calls, which were bought early for $0.10 to $0.12.
Those contracts lock in the price where the stock can be purchased, no matter how high it might rise. Because they are relatively inexpensive, the options can generate significant leverage if the stock moves.
And move it did.
Bank of America paused briefly, but then press reports indicated that the bank would settle a legal dispute with bond insurer MBIA. That gave BofA shares a second wind, pushing them up 5.23 percent to $12.88 by the end of the session.
The Weekly 12.50 calls more than tripled to $0.41—not bad for a few hours work! More than 56,000 contracts changed hands, compared to previous open interest of 33,441 at the strike.
Investors piled into the Weekly 13 calls later in the session, eventually buying more than 100,000 contracts. Premiums surged from just $0.01 to $0.13.
Total option volume was quadruple the daily average, with calls accounting for more than four-fifths of the total.
—By CNBC Contributor David Russell
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David Russell is a reporter and writer for OptionMonster. Russell owns shares in MBIA.