$CVNA bulls quadruple money

Option traders posted big gains on upside positions in Carvana today.

On Feb. 5, Investitute’s market scanners identified the purchase of 5,000 March $40 calls for $1.35 to $1.64 with shares at $34.12. This was clearly fresh buying, as open interest in the strike was a mere 23 contracts before the activity appeared.

Those calls traded for as much as $5.57 today, more than 4 times their initial purchase price. The stock rallied 30.83% in the same time period, a large move but nowhere near that of its options on a relative basis.

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.

CVNA spiked to $45.50 this morning before pulling back to close at $43.62, down 2.76% on the session. Citi raised its price target on Carvana to $65 from $55 yesterday after the online used-car platform announced quarterly results.