Option traders sell a long-term spread in Bank of America (NYSE: BAC)

Option traders sell a long-term spread in Bank of America (NYSE: BAC)
A short calendar spread trades on Bank of America (BAC) shares as the stock edges higher

News was scarce in Bank of America (NYSE:BAC) on Friday, but investors were still inspired to trade some longer-term puts on the banking giant, the shares of which rose 25 cents to $15 during Friday’s session.

In early-afternoon trading on Friday, blocks of 9,800 puts traded at the January 2012 10 and January 2011 10 strikes. The closer-term put (expiring in about 11 months) traded for 86 cents and the 2012 position, which has more time value built in, hit the tape at $1.37 per contract. The 2011 put was down just two cents at Friday’s close despite a 25-cent increase in the stock. Given its delta reading, this put should have dropped by about six cents, but buying pressure (and a subsequent increase in implied volatility) kept the price of this option elevated.

It is possible that investors were buying the closer-term position and selling the longer-term put, collecting 51 cents per spread to do so. In order for this strategy to prove successful (and worth the investor’s while), BAC shares will have to move higher quickly, deteriorating the value of these puts so the spread can be repurchased at a profit.

Shortly before this spread changed hands, a separate block of 7,760 contracts traded for $1.32 at the January 2012 10 strike. This block went off near the bid price, suggesting they may have been sold to open. It’s a long time out, but if BAC is still trading above $10 when these options expire, the trader will keep the $1.32. Of course, the value of this put may decrease as time progresses, along the investor to repurchase it at a lower price, booking the difference as profit.

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More on BAC:

Traders keep “delta neutral” in Bank of America (NYSE: BAC)

Option spread strategies for bulls and bears on Bank of America (NYSE: BAC)

Put Selling Seen in Bank of America (BAC)