Bulls build big profits with $LEN

Lennar spiked higher on strong quarterly results this morning, handing large gains to upside option traders.

On March 2, Investitute’s tracking systems identified the purchase of 8,300 May $57.50 calls for $2.99 as part of a bullish spread with shares at $56.53. Open interest in the strike was only 373 contracts before the trade appeared, showing that it was a new position.

Those calls traded for $7.40 this afternoon, 2.5 times their purchase price. The stock rose 13% in the same time period, illustrating 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.

LEN surged 10.04% to $62.82 today. The homebuilder raised its sales outlook after blowing past earnings and revenue expectations this morning, lifting shares of its rivals along the way.