$GM call buyers double their money

Option traders doubled their money in General Motors today on a much better than expected earnings report.

On September 26, Investitute’s market scanners identified the purchase of 4,000 November $34 calls for $1.36 to $1.39 with shares at $33.74. Volume was far above the strike’s open interest of 146 contracts, showing that this was fresh buying.

Those calls traded for $3.22 this afternoon, more than twice their purchase prices. The stock rose 9.6% 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.

GM was up 9.1% to close at $36.59 today. The auto manufacturer’s shares rallied this morning after its earnings report where a hefty beat on both the top and bottom lines rejuvenated investor confidence.