$GPS call prices rip higher

Upside option traders saw the value of their positions rip higher as The Gap delivered on its earnings report.

On Feb. 25, Investitute’s tracking systems detected the purchase of 3,900 Weekly 27 calls expiring on March 1 from $0.39 to $0.47, as part of a bullish spread with shares at $25.01. Open interest in the strike was a mere 318 contracts before that session began, showing that this clearly was a new position.

Those 01March 27 calls traded for as much as $4.35 this morning, ten times their average purchase price. The stock rallied 21.71% in the same time period, a large move but nowhere near that of its options on a relative basis.

Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

GPS spiked higher to $31.39 before consolidating to close up 16.18% to $29.51 today. The apparel retailer beat earnings expectations after the closing bell last night and announced that it would be spinning off its popular Old Navy brand.