AMC call buyers ride ticket to profits

AMC Entertainment (AMC) has set a new 3-year high today and bullish option traders are turning some fast money on positions opened yesterday.

Just yesterday on May 26, Market Rebellion’s Unusual Activity Service found that 14,000 Weekly $18 calls, expiring tomorrow, May 28, were bought for $1.25 to $2.30 with shares at $17.26. This was clearly fresh buying, as open interest in the strike was just 8,435 contracts before the activity appeared.

Those calls have traded up to $12.00 so far today, at least 5 times their purchase prices. The stock rallied 72.42% 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 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.

AMC was last at $29.26 this afternoon, up 49.57% on the day. B. Riley downgraded shares to Neutral from Buy yesterday morning.