Bank of New York Mellon (BK) call volume spikes


Amid the broader market rally, the CBOE S&P 500 Volatility Index ( VIX ) is on the decline today. One example of declining implied volatility can be seen by call selling in The Bank of New York Mellon Corp. (NYSE: BK ) . But this options action is not a bearish bet. Rather, the call action was part of a buy write strategy, which is effectively moderately bullish.

Looking at the January 2011 28-strike calls of 2011, we saw a block of 5,000 contracts change hands for $1.86 per contract at 9:35 a.m. EST. Current open interest in these calls is a mere 2,066 contracts. This disparity indicates investors sold these calls to open.

At first glance, this type of activity would appear to be moderately bearish. After all, call selling suggests that the trader is betting the shares will hit a ceiling prior to the expiration month. But a closer look at this trade suggests that the strategy is in fact moderately bullish. We say this because this trade was actually part of a buy write, where the investor sold the calls, but bought 100 shares for every contract sold. Looking at the time and sales of the stock, we see that 500,000 shares traded for $26.60 at the same time that the options traded. Because the option has a delta less than 100, the net effect is that a buy write has a positive delta and is moderately bullish.

Looking at the profit/loss graph of this trade from a virtual trading account shows that the maximum profit is actually reached if shares of BK rally. So, you can see visually that this is indeed a moderately bullish play.

Shares of BK have gained 23 cents to $26.50 so far on the day. The company did not announce any notable news today, and the stock just seems to be following the broad market higher. BK is scheduled to announce earnings figures on July 20 before the market opens.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Options

Referenced Stocks: BK

Jud Pyle

Jud Pyle

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