In order to acclimate to this new, post-"too big to fail" era of banking, Bank of America Corp. (NYSE: BAC) is reportedly planning to close down some branches. However, the blue chip bank doesn't intend to shut down 10% of its branches, as reported earlier. Instead, said company spokesman James Mahoney, the size of the network "will come down modestly" in size during the next three- to five-year period.
At the end of June, BAC boasted 6,109 branches throughout the U.S., second only to Wells Fargo & Co. (NYSE: WFC). Mahoney clarified that the bank is not being pressured by regulators to reduce its scope, and it will continue to add new branches strategically, even as it shutters some outlets.
Investors seem relatively uninterested by the news, with BAC fractionally lower in mid-morning trading. The stock is currently pinned between support at its 10-week moving average and resistance at the $14 level; this latter region has capped the equity's progress since early May.
Meanwhile, in the options pits, bullish activity is heating up on BAC. Call volume ramped up to two times the norm within the first hour of trading, and investors have set their sights on the out-of-the-money August 16 call, in particular. This option has seen more than 47,500 contracts change hands so far, with a whopping 95% of the volume crossing the tape at the ask price. This suggests that traders are buying new calls at this strike today.
As a result of the rising demand for this option, implied volatility for the August 16 call has jumped 5.6% at last check. Now, this strike carries implied volatility of 56%, outpacing the stock's one-month historical volatility of about 53%. In other words, this call option is currently a little more expensive than usual, as traders gravitate toward the August 16 strike en masse.
However, if traders continue to build call open interest at out-of-the-money strikes, it could exacerbate BAC's technical troubles. The August 14 and 15 calls each carry open interest in excess of 211,000 contracts, while the August 16 call has 170,851 contracts in residence -- and judging by today's bullishly skewed volume, open interest at this strike could very well rise overnight. During the short term, these heavy call accumulations could keep the already-pinned shares under pressure.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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