Calls score more gains in $CLF

Cleveland Cliffs spiked higher for the second consecutive session today, continuing to yield large profits on bullish option positions.

On July 19, Investitute’s tracking systems detected the purchase of 10,800 August $7 calls in one print for $1.85 with shares at $8.77. Volume was far above the strike’s open interest of 1,603 contracts, showing that this was a new position.

Those calls traded up to $4.26 this afternoon, more than twice their purchase price. The stock rose 28.27% in the same time frame, showing how quickly options can outpace gains in their underlying shares. It was the second winning trade in CLF posted on Investitute in as many sessions.

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.

CLF surged 9.24% to $10.88 today, following a 12.67% rally Friday on strong quarterly results. This morning JP Morgan upgraded the iron-ore producer to “overweight” from “neutral” and raised its price target to $15 from $9, while Citi lifted its target to $12 from $11.

(Disclosure: I am long CLF.)