$BAC bears bank a winner

Bank of America (BAC) retreated with the rest of the financial sector today, delivering fast gains to bearish option traders.

Yesterday on May 12, Market Rebellion’s Unusual Activity Service detected the purchase of 4,800 Weekly $21.50 puts, expiring May 22, for $0.42 to $0.46 with shares at $22.21. Volume was well above the strike’s previous open interest of just 413 contracts, showing that this was a new position.

Those puts traded for as much as $1.21 today, nearly 3 times their purchase prices. The stock fell 6.57 % in the same time period, underscoring how options can far outperform their underlying shares.

Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.

BAC is ended lower on the session by 4.57% to $20.87. The bank traded lower along with the rest of the broader market today after a speech from Fed Chair Powell this morning, where he noted that further stimulus could be needed to support the U.S. economy as a result of the coronavirus.