$AA calls rack up quick profits

It took only a week for bullish option traders to triple their money in Alcoa.

On Sept. 26, Investitute’s tracking systems detected the purchase of 10,000 October $41 calls for $1.44 as part of a bullish spread with shares at $40.10. This was clearly a new position, as open interest in the strike was a mere 253 contracts before that session began.

Those calls traded up to $4.80 this morning, more than 3 times their purchase price. The stock rose 13.22% in the same time frame, showing how quickly options can far outperform their underlying shares. Investitute co-founder Pete Najarian also cited buying in the November $48 calls on CNBC’s “Halftime Report” today.

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.

AA was up 3.2% to $42.89 today. The aluminum producer rallied this morning after reports that Norwegian rival Norsk Hydro ASA was closing its refinery in Brazil. Alcoa is scheduled to announce quarterly results after the market closes on Oct. 17.

(Disclosure: I am long AA.)