Sunday, October 2, 2011

Highly distorted prices of long term BofA call options


There is something funny going on with the long term out-of-the-money call options on Bank of America. And its not a typical example of the "volatility smile" ;)

$1.00 calls for December 2013 were trading (lightly) at $0.08 on Friday. According to Black-Scholes formula, a theoretical value of such option is $5.12.

At the same time, $1.00 calls for December 2014, were quoted at $0.36, although there were no transactions.

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