Bank of America Bull Sets Up Shop in August Contract Calls and Puts

Today’s tickers: BAC, VRTX, SKX & GT BAC  - Bank of America Corp. –  Pessimism on the financial sector overflow-eth as of late and shares in Bank of America currently hover just above fresh 2-year lows, but for one contrarian strategist it looks like now is the perfect time to bet big on a BAC-rebound. Shares in Bank of America lost 31.4% of their value since mid-January, sliding to as low as $10.50 before rising 1.50% this afternoon to $10.70. Hoping to see shares in the financial services company recover by the dog days of summer, it appears one big player employed a three-legged bullish spread using August contract call and put options. The investor picked up 25,000 calls at the August $11 strike for a premium of $0.46 each, sold the same number of calls up at the August $14 strike at a premium of $0.02 per contract, and sold 25,000 puts at the August $9.0 strike for a premium of $0.14 a-pop. The net cost of the transaction reduces to $0.30 per contract and prepares the trader to profit should BAC’s shares rally 5.6% over the current price of $10.70 to breach the effective breakeven point at $11.30 by August expiration day. The trader paid $0.30 per contract – or a total of $750,000 – for the spread, but stands ready to make as much as $2.70 per contract or $6.75 million if the price of the underlying soars 30.8% in the next couple of months to exceed $14.00 at expiration. The parameters of the transaction are such that the investor could lose more than just the three-quarters of a million dollars paid for the transaction. Short puts at the August $9.0 strike indicate the trader could have 2.5 million shares of the underlying put to him at $9.00 at expiration should the stock continue to deteriorate. But, the investor seems more than happy to bear such risk in exchange for the added financing provided by the third-leg of the spread.…