Calls fire up large gains in $PM

Bullish option traders more than doubled their money in Philip Morris today.

On Aug. 14, Investitute’s tracking systems detected the purchase of 4,200 October $85 calls for $1.61 to $1.68 with shares at $82.36. These were clearly new positions, as open interest in the strike was only 488 contracts before the trades occurred. Investitute co-founder Pete Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those calls traded up to $4.30 this morning, more than 2.5 times their purchase prices. The stock rose 8.23% 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.

PM jumped 3.5% to $87.52 today. The cigarette maker topped earnings and revenue expectations this morning.