Call buyers score big in $AA

Option traders who opened upside positions in Alcoa (AA) in the first quarter of this year are piling up big profits today.

Back on Feb. 26, Market Rebellion’s Unusual Activity Service found that 11,300 October $35 calls, expiring today, were bought for $2.10 to $2.20 above the previous open interest of just 210 with shares at $24.37.

Those calls traded for as much as $21.52 today, 10 times their average purchase price. The stock rose 131.56% in the same time frame, illustrating the kind of leverage that can be achieved with options.

Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

AA was higher by 14.71% to close at $56.00 this afternoon.