Bulls cash in at Bank of America

Upside option trades drew exponential gains in Bank of America today, less than one week after they were opened.

On Monday, Investitute’s market scanners found that 9,300 Weekly $23 calls expiring on July 7 were purchased for $0.32 to $0.41 with shares at $23.08. Volume was well above the strike’s open interest of 3,592 contracts, indicating that this was fresh buying.

Those calls traded for $1.63 today, a profit of about 350 percent. The stock was up less than 6.7 percent at the same time, showing how quickly options can far outperform their underlying shares.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

BAC rose 1.8 percent to $24.32 today. After passing the Federal Reserve’s so-called stress test, the company announced that it would buy back $12 billion in stock and raise its quarterly dividend by 60 percent.

(Disclosure: I am long BAC.)