An interesting trade hit the tape in Bank of America (BAC) - Get Report options on Wednesday, suggesting one very large customer may believe significant short-term upside is possible from recent $13.00 range lows.

Just before 11:30 a.m. EDT, tied to a hedge trade of 2.1 million shares at $13.35, a customer paid $0.11 for 100,000 BAC September 14 calls to open a new position. Shares closed at $13.37, and these calls expire in just nine days. I find it very interesting that someone would commit $1.1 million to a trade that requires a 5.6% lift in shares just to break even.

Bank of America (BAC) One Minute Contract Volume
Source: TradeAlert

View Chart


Shares opened a bit higher on Thursday, at $13.58, and the September 14 calls are a few cents higher near $0.14. BAC is trading at $13.87, at the time of writing. For traders interested in following this bullish lead, I would consider an October 14-15 1x2 call spread for an $0.18 debit as a reasonable risk/reward play. The trade is profitable if shares lift into the mid $14.00 range, with a maximum gain of $0.82 at $15.00, and loses if shares were to get as high as $15.82. The $0.18 debit would be lost if shares expire below $14.18.

Trades: Buy to open 10 BAC October 14 calls for $0.44 and sell to open 20 BAC October 15 calls for $0.13.

At the time of publication, Henry Schwartz held no positions in the stocks or issues mentioned.

Henry is the president of Trade Alert LLC, a provider of real-time options analysis tools to leading Wall Street firms. His systems analyze hundreds of thousands of transactions per second to help professionals identify and interpret market activity in real time, supporting informed trading decisions and intelligent idea generation.

OptionsProfitsFor actionable options trade ideas from a team of experts, visit TheStreet's OptionsProfits now.

Readers Also Like:

>>DBA Going MIA?

Readers Also Like:

>>Toys 'R' Us Pop-Ups Invade Malls

Readers Also Like:

>>Achilles Heel for High Gold Prices