$BAC bulls quadruple money

Bank of America (BAC) reported strong quarterly results today, returning exponential gains on upside option positions.

On Aug. 15, our tracking systems detected the purchase of 12,200 October $28 calls for $0.69 to $0.72 above open interest of 3,827 contracts with shares at $26.61. Market Rebellion co-founder Pete Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those calls traded for as much as $2.72 this morning, about 4 times their initial purchase price. The stock rose 15.44% in the same time period, underscoring how options can far outperform 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 is up 2.14% to $30.37 in late-morning trading. The bank beat earnings and revenue estimates before the market opened today.