Traders withdraw more gains from $BAC

Option traders have been piling into upside positions in Bank of America for weeks, and now they are paying off big time.

Last Thursday, Investitute’s market scanners found that 50,000 Weekly $23.50 calls expiring on Sept. 29 were purchased in one print for $0.31 with shares at $22.85. This was clearly a new position, as volume was well above the strike’s open interest of 15,676 contracts.

Today those calls traded for $1.02, more than tripling in value less than a week later. The stock rose just 6.6 percent at the same time, illustrating the kind of leverage that can be achieved through options.

Bank of America also saw heavy buying yesterday in the Weekly $24 calls and today in the Weekly $24.50 calls that also expire on Sept. 29. The unusual activity has been cited repeatedly on CNBC by Investitute co-founder Pete Najarian.

Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

BAC rose 0.29 percent to $24.24 today. Shares have been buoyed by several factors in recent days, including a higher dollar, renewed hopes for tax reform, and bullish comments by several bank executives at industry conferences this week.

(Disclosure: I am long BAC.)