$DHI bulls triple their money

D.R. Horton rallied with other homebuilders today, turning quick gains for upside option traders.

On July 12, Investitute’s tracking systems found that 15,700 Weekly $42.50 calls expiring on July 27 were purchased for $0.64 to $0.81 with shares at $41.20. This was clearly fresh buying, as open interest in the strike was a mere 56 contracts before the activity appeared. Investitute co-founder Jon Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those calls traded for $1.83 late today, nearly 3 times their original purchase price. The stock rose 5.17% in the same time frame, showing how quickly options can far outperform 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.

DHI was up 2.95% to $43.22 today. The stock rebounded after a healthy homebuilder-sentiment report this morning, the latest in a string of positive housing data recently.