Bank of America Corp BAC and other big bank stocks trades higher on Monday after the latest trade war headlines struck an optimistic tone. Bank of America definitely had some large option traders’ attention ahead of a Federal Reserve interest rate decision coming next week.
On Monday morning, Benzinga Pro subscribers received more than 34 option alerts related to unusually large Bank of America trades. Here are four of the biggest:
- At 9:51 a.m., a trader bought 2,736 Bank of America call options with a $31 strike price expiring on Jan. 17, 2020 above the ask price at 64.8 cents. The trade represented a $177,292 bullish long-term bet.
- Less than a minute later, potentially the same trader bought 2,742 more Bank of America Jan. 17 call options with a $31 strike price near the ask price at 65 cents. The trade represented a $178,230 bullish long-term bet.
- Again, within a minute, potentially the same trader bought 5,628 more Bank of America Jan. 17 call options with a $31 strike price at the ask price at 66.1 cents. The trade represented a $372,010 bullish long-term bet.
- At 11:57 a.m., a trader sold 1,959 Bank of America call options with a $28 strike price expiring on Nov. 15 below the bid price at $1.68 cents. The trade represented a $329,112 bearish bet.
Of the 34 large Bank of America option trades, 25 were either calls purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. Nine trades were either calls sold at or near the bid, or puts purchased at or near the ask, trades typically seen as bearish.Several neutral traded were executed near the spread midpoint.
Why It's Important
Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.
Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.
Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given at 11 large trades were executed within two minutes of each other in Jan. 17 Bank of America calls, they could easily have represented institutional hedges.
Better Banking Ahead?
For bank stock investors, the bull thesis is all about the U.S. economic outlook and the monetary policy decisions by the Fed.
On Friday, Politico reported China has offered to buy more U.S. agricultural products, a potential positive development in trade tensions. That same day, Fed chair Jeome Powell said the Fed will act “as appropriate” to maintain U.S. economic growth. The Wall Street Journal previously reported that the Fed will issue a second 0.25% interest rate cut next week.
Assuming the majority of Monday’s Bank of America trading action does not represent hedging, it was markedly bullish in nature. Option traders seem to be making longer-term bets that the U.S. economy won’t require aggressive monetary easing to continue to grow. The traders may also be betting on a trade war resolution prior to the next round of tariffs set to go into effect in December.
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Photo credit: Mike Mozart, Flickr
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