$BAC trades turn profit in hours

Option traders who opened bullish positions in Bank of America early today collected significant gains by the afternoon.

This morning Investitute’s tracking systems showed that 21,000 Weekly $31.50 calls expiring this afternoon were purchased for $0.02 and $0.03 with shares at $31.20. These were clearly new positions, as volume was well above the strike’s open interest of 4,839 contracts.

Those calls traded up to $0.20 today, 10 times their original purchase price. The stock rose 1.37 at the same time, underscoring how options can quickly outpace gains in their underlying shares.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

BAC was up 0.48% today to close at $31.63. The bank has been one of the best-performing large-cap stocks through the market’s recent volatility.

(Disclosure: I am long BAC.)