$GPS bulls score before earnings

Upside option traders have seen the value of their positions rip higher before The Gap (GPS) delivers its earnings report later today.

On Tuesday, Aug. 20, Our tracking systems detected the purchase of 6,400 Weekly $17 calls expiring on 23August from $0.55 to $0.61, as part of a complex bullish spread with shares at $16.29. Open interest in the strike was a mere 618 contracts before that session began, showing that this clearly was a new position.

Those 23August $17 calls have traded for as much as $1.64 this morning, more than 2.5 times their average purchase price. The stock rallied 10.31% 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 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.

GPS is currently trading just off its session high at $17.70, up 4.33% on the day. The apparel retailer reports earnings today after the closing bell.