Alternative Options Scenarios for Bank of America (BAC)

Financial shares are bucking the downtrend in Monday’s market, with Bank of America (BAC) adding 1.28% to $16.21 per share even as the broader S&P 500 index is lower by 0.26%. Options trading in the lender is also showing a bullish bent with 169,000 contracts in play and topping the list of most active by option volume.

The bigger option plays are in the nearby January expiration with 15, 16 & 17 strikes popular with bulls. Those betting on a recovering economy and a steepening of the yield curve that may boost earnings at financial companies continue to favor the sector as a whole. Bank of America for example has vaulted from $13.75 per share at the end of the first week of November and used the record advance for the S&P 500 index as reason enough to jump to its highest value since May 2010.

While we have no problem with the current advance in financials even as the broader market struggles, it got us thinking about what the options market is currently forecasting for Bank of America. The Probability Distribution (PD) through March 21 expiration options series suggests that Bank of America’s share price may settle between $16-17.00. Its PD is remarkably symmetrical according to prevailing option premiums.

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