$CF option bulls find fertile ground

Upside option positions are turning exponential profits in CF Industries Holdings, Inc. (CF).

On Oct. 18, Market Rebellion’s Unusual Activity scanners identified the purchase of 5,000 January $65 calls for $2.50 to $2.65 as part of a bullish spread, selling an equivalent number of downside puts, with shares at $60.45. This was clearly a new position, as volume was clearly above the strike’s previous open interest of 1,267 contracts.

Those calls have traded up to $7.50, more than 2.5 times their original purchase prices. The stock rose 18.4% in the same time period, illustrating how quickly options can far outperform 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.

CF was last up 3.76% in afternoon trade at $71.17.