$HBI bulls put on some gains

Upside calls bought in Hanesbrands (HBI) two weeks ago are paying off for option traders today.

On May 20, Market Rebellion’s Unusual Activity Service found that 4,100 June $12 calls were bought for $0.10 to $0.20 with shares at $9.47. This was clearly fresh buying, as open interest in the strike was only 626 contracts before the activity appeared.

Those calls traded for as much as $1.04 today, at least 5 times their purchase prices. The stock rose 27.35% in the same time frame, a large move but nothing like that of its options on a relative basis.

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.

HBI ended the day to close up 12.21% at $12.04. The American clothing company’s shares, which are sharply off their March lows, gapped above their 100-Day SMA this morning and filled their gap from Mar. 9.