$GPS call prices double

Upside option traders are making fast profits in The Gap (GPS) today after a bullish analyst note.

On Aug. 11, Market Rebellion’s Unusual Activity systems detected the purchase of 15,000 Weekly $15.50 calls for $1.19 as part of a complex bullish spread with shares at $15.54. Volume was well above the strike’s previous open interest of just 224 contracts, indicating that this was a new position.

Those calls traded for as much as $2.03 this afternoon, nearly twice their purchase price. The stock rallied 10.3% 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 closed the session at $17.11, up 10.32% on the day. The apparel retailer, which reports earnings on Aug. 27 after the closing bell, was upgraded to a Buy at Citi this morning, which also raised its price target on the shares to $24 from $12.