Friday, August 12, 2011

Trade of the Day: Bank of America (BAC) February 2012 $12/$14 ratio call spread

The Trade
Trader executed the February 2012 $12/$14 ratio call spread 20,000x for a $.05 debit, $100,000 total. Maximum risk is unlimited, equal to going short at $16. Maximum profit potential is limited at $14 to $3,900,000.


Analyzed solely based on direction, the trade is clearly bullish. However, the real premise behind the trade is that it favors a decrease in implied volatility. This trade looks to see current implied volatility levels of roughly 56% to decrease somewhere near historical levels in the low 30% range. The trade is also positive theta, meaning that it profits from premium time decay.

The graph below shows the profit potential of the trade assuming implied volatility decreases to 31%.





http://seaofopportunity.blogspot.com/

*Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow!

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

No comments:

Post a Comment