Big Printin’ – BAC Out

by riskreversal October 20, 2016 3:50 pm • Big Printin'

Last night on CNBC’s Fast Money my co-panelist Pete Najarian offered his final trade, that he is long and strong Bank of America (BAC), and thinks it makes a new 52 week high above $18 before year end. I glibly said not a chance.  I guess that’s what makes a market. But to be clear, he is long, and I have no position, so my comment is what is, glib with no real personal conviction:

My cautious view on bank stocks is simple, that despite low expectations, and actually producing decent Q3 results, it’s my view that despite the recent rise in rates off of nearly all time lows a December Fed Funds increase may soon be baked in the cake, as there is little chance that the FOMC aggressively starts a tightening cycle in 2017.  As for Pete’s bullish view, he bases it on improving fundamentals, very solid momentum in stock of late, an increasingly constructive technical set up and I suspect some options activity that helps confirm his view.

Which brings me today to some fairly heavy call volume in the name that may or may not support a bullish view with today’s action being dominated by calls. But first let me offer our usual disclaimer when it comes to reading into too much to unusual options activity: Without intimate knowledge of the trade, or the trader’s intention it is impossible to make an intelligent inducement of said activity as it hard to know what the options position may be against. But it is always interesting to try to help gauge sentiment.

Ok, so today in BAC, call volume is about 4x that of puts, 350,000 to 82,000, but look closely. Here were the three largest trades, as reported from the floors in which they were crossed:

1. BAC jan 18 c 45,700 traded .25 ELECTRIC SELLER
2. BAC Nov 16/Dec 17 call spread paper sld 41500 at .395
3. BAC sld 51500 may 19 c @ .35 bot 1,236,000 for 16.6317 x’d all

Let’s break them down here… 

1. Jan 18 calls, look sold to close as they were marked closing, sold on the bid and versus 65,000 of open interest. So this trader is closing an existing long call position with the stock nearing its 2016 highs from early January.

2. Both the Nov 16 calls, and the Dec 17 calls were marked closing, and could be closing a diagonal call calendar spread. This looks non-directional

3. These calls were clearly sold to open, but they were traded on a 23 delta, where a trader bought 1.23 million shares, this looks to be non-directional and more of a vol trade.

Lastly, if the Fed were to become increasingly hawkish, then large moneycenter banks like BAC would clearly benefit from an increase in their net interest margins helping with the spread between what they borrow and what they lend at.  If the 10 year treasury yield were to rocked above 2% before the FOMC’s Dec 14 meeting, than maybe just maybe we would see a stock like BAC at or above $18 by then. So sorry for being so glib Pete.