Option traders who opened bullish positions in Bank of America this morning were posting large gains only a few hours later.
Just 10 minutes after the opening bell, Investitute’s market scanners found that 15,900 Weekly $28.50 calls expiring this Friday were purchased for $0.08 to $0.13 with shares at $27.96. Volume was far above the strike’s open interest of 7,363 contracts, showing that this was new positioning. Investitute co-founder Pete Najarian cited the unusual activity on CNBC’s “Halftime Report” this afternoon.
Those calls traded for $0.25 today, more than 3 times their original purchase price. The stock rose less than 1.9 percent in the same time, demonstrating 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 was up 2.32 percent today to close at $28.28. The bank rallied to a new 52-week high this morning as investors bid up financials and other industries that could benefit from tax legislation being debated in the Senate.