BofA (BAC) is down 3 cents to $12.87 and fell 6.2 percent on the week, but some players in the options market expect strength over the next two months. BAC August 14 call option is today’s most actively traded contract, with 56K traded so far. Today’s trades include a “reverse diagonal spread”, where a strategist bought 15,000 August 14 calls and sold 15,000 January (2010) calls at the $20 strike. They paid 45 cents and are probably looking for a move beyond $14.45 by the August expiration, but not above $20 by mid-January.

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Here’s a look at my Market Delta screen shortly after release of the PPI and housing numbers (bottom chart), both of which were better than expected. We have held above Monday’s lows in the overnight trade, with commodity weakness and dollar strength reversing. Note the volume at offer exceeding volume at bid (bottom histogram) so far; I’m now watching to see if we can move back into the June trading range vs. establish value lower, into May’s range. A bounce following a high momentum decline is not unusual; returns thereafter tend to be dicey. A move below the level from which we rallied with the 7:30 AM CT numbers would suggest difficulty moving higher on good news; that would hit my radar.

9:03 AM CT – Here’s an update of ES trading (top chart); note how we’re building value between 921 and 924 in a range trade so far this morning. I’m watching closely to see if moves toward the edges of this range attract volume (institutional participation). Should volume slow significantly, we could set up some extended range trade.
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