There was a whopper of a call buyer in Bank of America yesterday, easily one of the largest trades to print in Bank of America(BAC) options this year (and one of the largest among all single-stocks YTD, excluding dividend trades).
The buyer paid $0.74 for nearly 125,000 contracts to open the position, and 'tied' the trade to a delta hedge of 4.12 million shares at $14.45. The delta tie is a common way to eliminate a big part of the slippage that would occur if the trader tried to buy the calls outright. While BAC isone of the most liquid stocks in the market (nearly 139 million shares of BAC trade daily), a purchase of 4 million shares would still tend to move the market a good amount. So when the option trader also executes the delta hedge he or she is able to get the best market possible from their broker. If the trader really only wanted the options, they can then take their time working out of the stock. Or if this is a 'stock replacement trade' they may have just traded their large holding for an option position that starts out with a very similar payoff profile.
BAC shares are up nearly 1% this morning, to $14.75 and this call buyer is already looking at a $0.10 gain (over a million bucks!) on the options position. Shares have had a good run over the past two years -- nearly tripling from $5 lows, but they are still well below 2010 highs which were near 20 (and don't even ask about pre-2008 share price). In my view, a position this size is a very clear wager for BAC shares to continue their run, despite some growing sentiment that maybe the 20+% increase for the broad market may be growing tired.