$DOW bulls double their money

Patient bullish option traders doubled their money in upside positions on Dow Inc. (DOW) today.

On Jun. 2, Market Rebellion’s Unusual Activity tracking systems found that 4,400 September $45 calls were bought for $2.05 as part of a bullish spread with shares at $40.74. This was clearly fresh buying, as open interest in the strike was only 779 contracts before the activity appeared.

Those calls traded up to $5.30 today, more than 2.5 times their purchase price. The stock rose 23.34% in the same time frame, 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.

DOW closed higher this session by 2.36% to $49.85. The chemicals company’s price target was raised to $55 from $48 this morning at Deutsche Bank.