Traders build on profits in $LEN

Lennar has rallied to multi-month highs along with other homebuilders, yielding sizable returns on bullish option positions.

On Dec. 6, Investitute’s tracking systems cited the purchase of 5,000 February $40 calls for $3.95 to $4.15 with shares at $41.83. This was clearly a new position, as open interest in the strike was a mere 219 contracts before the trade occurred.

Those calls sold for $7.53 today, about twice their initial purchase price. The stock rose 13.32% 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.

LEN jumped to $48.47 this morning, its highest price since September, before pulling back with the rest of the market to close lower by 0.57% at $47.15. On Jan. 9, Investitute co-founder Pete Najarian discussed Lennar, which he owns, on CNBC’s “Halftime Report.” The next day, the homebuilder announced that its board has approved the repurchase of up to $1 billion of its stock, or 25 million shares.