$CAT calls up 5-fold overnight

Option traders posted exponential gains today on bullish positions opened in Caterpillar only one session earlier.

Just yesterday, Investitute’s proprietary programs found that 2,000 Weekly $140 calls expiring on Feb. 22 were purchased for $0.25 to $0.34 with shares at $135.61. This was clearly fresh buying, as open interest in the strike was only 140 contracts before the activity appeared.

Those calls traded for $1.51 this afternoon, 5 times their average purchase price. The stock rose 3.66% at the same time, showing how quickly options can far outpace gains in 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.

CAT was up 3.32% to $140.31 today. Shares of the construction-equipment maker have rallied with a bullish technical pattern cited earlier on Investitute’s chat forum.