Shares of Bank of America hover just below 10-month highs, and the options trade suggests long-term bullishness.
BAC stock is up 2.5 percent to $17.17. It has made a nice run up from its low below 3 back in March and is up 20 percent for the year. There is significant resistance at the 18 level going back to November, when shares fell from 38 to 10 in less than 2 months.
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The options action is large and a bit confounding. First, we see what clearly appears to be a bullish vertical calls spread, with 11,500 of the January 2011 30 calls bought for 1.16 and seconds later the same number of the 35 calls were sold for 0.63.
This vertical spread has a net debit of 0.53, which is maximum loss.
The trade will make the profit of 4.47 if BAC is above 35 at that expiration. That is roughly a 900 percent return if the stock doubles in price.
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The volume at the 30 strike was below open interest, but above OI (open interest) at the 35 strike, and this clearly looks like a single bullish spread.
But then a few minutes later, 12,600 of the 2011 25 calls also appeared to be bought, traded in three large blocks — all for 1.97. This too was below open interest and could have been the closing of already-opened positions.
Separately, UBS' agreement with U.S. authorities to hand over details on more than 50,000 customers has lifted share by more than 6 percent, making good on yesterday's short-term call buying.
The Swiss bank's stock price had been hovering near $15 since May, with a few dips and jumps over $16.
But buyers stepped up to purchase the Aug 16 calls for $0.20, despite just 2 days to expiration. Now those calls are trading $0.60-0.65, more than a double from Wednesday.
The author does not have any positions in the companies mentioned.
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Chris McKhann is an analyst and writer for OptionMonster.