$K bulls devour gains

Option traders holding bullish positions in Kellogg’s (K) this morning are reaping exponential gains.

On Jul. 3, just after the opening bell, Our market scanners identified the purchase of 2,500 August $60 calls, expiring tomorrow, for $0.47 to $0.52 with shares at $55.32. This was clearly fresh buying, as volume was well above the strike’s previous open interest of 142 contracts.

Those calls traded up to $2.45 this morning, nearly 5 times their average purchase price. The stock rose 13.32% at the same time, showing how quickly options can far outpace gains in their underlying shares.

It is the second outperforming trade in Kellogg’s in the past month posted in our Unusual Option Activity service.

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.

K is up 1.97% to $62.76 this morning. The food company reported earnings on August 1 before the market opened, beating on its top and bottom lines.