Option traders have quadrupled their money on upside positions opened in Steel Dynamics opened barely a month ago.
On Dec. 1, Investitute’s market scanners identified the purchase of 2,650 February $40 calls at the same time for $1.44 to $1.55 with shares at $38.88. Open interest in the strike was only 376 contracts before the trades occurred, showing that this was fresh buying.
Those calls traded for $5.88 this afternoon, 4 times their original purchase price. The stock rose 16.6 percent in the same time period, illustrating how 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.
STLD was up 1.67 percent today to close at $45.61. Steel makers have rallied sharply in recent months on a variety of developments, including anti-dumping measures, tax reform, and potential infrastructure spending.