Call prices jump threefold in $VALE

Bullish option traders mined big returns in Vale today.

On Jan. 2, Investitute’s proprietary programs cited the purchase of 6,700 March $14 calls for $0.25 to $0.31 with shares at $12.74. This was clearly fresh buying, as volume was well above the strike’s open interest of 2,110 contracts.

Those calls sold for $0.86 late this afternoon, about 3.5 times their original purchase price. The stock rose 14.6% in the same time period, 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.

VALE popped 3.17% today to close at $14.65. The iron-ore producer rose today amid rising demand in China and among U.S. steel makers.