Market Insights

Bank of America (BAC) had a monster rally this week, and options traders are looking for the lender to keep running higher.

Here’s a breakdown of a big transaction detected late yesterday morning in BAC:

• A block of 23,000 March 26 calls was sold for $2.80 and an equal number of March 29 calls were bought for $0.81. Volume was below open interest at both strikes, which indicates an existing bullish call spread was closed.
• At the same time, the trader bought 23,000 March 30 calls for $0.43 and sold a matching number of March 31s for $0.19. This time, it looks like a new bullish spread was opened.

What’s going on? Owning calls fix the price where a security can be purchased, while selling them generates income. Investors can combine the two strategies into a spread. That lets them capture a move between two prices for a fraction of the cost, resulting in potentially significant leverage. See our Knowledge Center.

Bank of America (BAC), with 200-day moving average and $31 level marked.

BAC rose 1.90 percent to $28.99 yesterday. It had its biggest gain in six years the previous session, up 7.2 percent, after a series of business improvements fueled blowout quarterly results.

Thursday’s transaction apparently made money from the rally, and now the trader is looking for BAC to keep running toward $31 by mid-March. He or she collected $1.99 from closing the initial spread and paid $0.24 to open the second position. They now stand to collect another $1 if the higher price is reached.

Overall options volume in the stock was about twice its average over the last month yesterday, with calls outnumbering puts by a bullish 3-to-1 ratio.