Call buyers score big in $HD

Option traders who opened bullish positions in Home Depot (HD) earlier this month are posting big profits today.

On Jan. 17, Market Rebellion’s Unusual Activity Service found that 3,400 Weekly $217.50 calls expiring this Friday were bought for $3.45 to $3.97 with shares at $218.66. This was clearly a new position, as open interest in the strike was just 335 contracts before that session began.

Those options traded for as much as $17.80 this morning, more than 4.5 times their average purchase price. The stock rose 7.59% at the same time, underscoring how quickly 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.

HD this afternoon is up 0.1% to $233.19 after reaching $236.53 earlier in the session after a better-than-expected existing home sales report for December. The home-improvement giant will report quarterly earnings results on Feb. 25 before the market opens.