$CLF call prices rocket fourfold

Shares of Cleveland-Cliffs spiked higher today, yielding large returns on bullish options positions.

On Dec. 13, Investitute’s proprietary programs flagged the purchase of 10,000 February $10 calls for $0.29 as part of a bullish roll with shares at $8.29. Volume was far above the strike’s previous open interest of 2,822 contracts, showing that this was a new position.

Those calls traded up to $1.15 today, 4 times their purchase price. The stock rallied 31.6% in the same time period, underscoring how options can far outperform their underlying shares. It was the second winning trade in the name posted on Investitute this month.

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.

CLF surged 17.74% to $10.82 today. The company rallied sharply along with other iron-ore miners after Vale (VALE) cut production following the dam collapse in Brazil, pushing prices of the material higher.

(Disclosure: I am long CLF.)