Two words sum up the trading in Bank of America yesterday: fast
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 Heat Seeker
program shows that activity was initially focused on the 12.50
calls, which were bought early for $0.10 to $0.12.
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.
BAC paused briefly, but then press reports indicated that the bank
would settle a legal dispute with bond insurer MBIA. That gave the
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
with 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.
I own MBIA shares.
(A version of this post appeared on
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