Calls build big gains in $DHI

Bullish option traders have been building big gains in D.R. Horton (DHI).

On Mar. 25, Market Rebellion’s Unusual Activity Service flagged the purchase of 2,700 August $47.50 calls bought for $2.50 to $2.60 with shares at $37.05. This was clearly fresh buying, as open interest in the strike was only a mere 3 contracts before that session began.

Those calls closed marked for $15.05 today, at least 5.5 times their purchase prices. The stock rose 68.8% in the same time frame, illustrating the kind of leverage that can be achieved quickly 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.

DHI was up 4.15% to end at $62.54 this session, just below its new high of $62.63 made earlier in the day. The homebuilder’s price target was raised to Goldman Sachs this morning to $66 from $62, and is scheduled to report earnings on Tuesday, Jul. 28 before the open.