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August 20, 2013  Tue 9:38 AM CT

BAC: SEE CHART GET CHAIN FIND STRATEGIES
A large trade is apparently designed to protect a long position in Bank of America as shares continue lower.

More than 24,000 each of the December 12 puts and 16 calls have changed hands in volume far above previous open interest below 250 contracts at each strike. The big blocks of 15,722 saw the 12 puts bought for their ask price of $0.22 and the calls sold for the same price, according to optionMONSTER systems.

This no-cost combination has no risk with shares between the two strike prices and is very likely a protective collar on long shares. That would cap the upside of the stock position at $16 but protect it below $12. (See our Education section)

BAC is down 0.85 percent this morning to $14.02. It hit a high of $15 almost a month ago but has been working lower since.

Total option volume in the name is just shy of 123,00 contracts, already outpacing the total daily average over the last month.
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As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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