The ‘Buffett Effect’ is still in effect as option Traders Move on Bank of America Again

It was a little over a week ago when Berkshire Hathaway bought its most recent tranche of 13.5 million shares of Bank of America Corp (NYSE: BAC). Since the buying began on July 22, option traders appear to have been following the buying with bullish option interest. That interest has dovetailed with a steepening yield curve and talks in Congress over stimulus spending. On Friday, the interest began to build again as the price looks to have found some support near $26.

Over the past few weeks, Warren Buffett’s Berkshire Hathaway has been buying a lot more shares of Bank of America. Since July 22, they have bought over 85 million shares for over $2 billion in value. The most recent purchase came on August 4 and the additional shares increased the company’s total holdings by around 9%.

Since mid-July, there has been continued bullish interest in the options market on BAC and Friday was no different. While the option volume wasn’t above average, there was a significant amount of activity on the 21 AUG 20 $27.50 call option. With over 50% of the call volume occurring at the bid price, the over 35,000 contracts traded on that contract against an open interest of 12,388 is a bullish sign.
Action to Take: With one week to expiration and the $27.50 strike price, it’s an indication of the expectations the stock will rise above that level by the end of the week.

Speculators may want to consider a 21 AUG 20 26/27 long call vertical spread for around $0.50 or less.