Bank Of America Option Traders Hurting After Fed Recommends 3 Rate Increases In 2022

What Happened: Option traders have been active on Bank of America Corporation BAC after the Federal Open Market Committee left rates unchanged, but voted for three rate increases in 2022. Interest rates have an impact upon banks and financial stocks because the rates at which banks can lend at has an impact upon their profits from lending.

Bank of America has had a volatile response to the FOMC decision briefly hitting $44.40 after the decision, then selling off aggressively near the intra-day lows around $43.70 before bouncing back to unchanged as of this writing.

This is in contrast to the S&P 500 ETF SPY, which has pretty much gained since the release and is up 0.6%.

Why It Matters: Option traders have been particularly bullish on Bank of America with over 200,000 options traded on Dec. 15 with approximately 160,000 calls and 40,000 puts, meaning four out of every five options were calls (image below).

Of the 200,000+ options traded, about 50% of them (~100,000) are short dated (expiring Friday, Dec. 17) with the largest concentrations between the $44 and $45 strikes (image below).

Meanwhile, approximately 46% of all options on the stock are expiring Friday, thus option traders should expect volatility heading into the expiry and early next week.

What's Next: With the large number of options expiring, there could be a period of weakness in the stock with all of these bullish option flows leaving the market.

Currently, resistance is just above around the $45 strike with support coming in around the $40 and $42 strikes.

If the stock were to break the $45 resistance, then the $46 and $47 strikes become the next upside targets.

Photo: Tony Webster via Wikimedia.