$KBH call buyers turn quick gains

Option traders who opened bullish positions just before KB Home reported quarterly results yesterday are already reaping large rewards.

On Wednesday, Investitute’s tracking systems detected the purchase of 3,000 April $32 calls for $0.49 to $0.67 as part of a bullish roll with shares at $29.64. Volume was above the strike’s open interest of 2,616 contracts, showing that this was a new position.

Those calls traded up to $1.18 today, about 2.5 times their original purchase price. The stock rose 7% at the same time, illustrating the kind of leverage that options can provide over their underlying shares.

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.

KBH was up 2.36% today to close at $29.52. The homebuilder topped first-quarter earnings estimates after the market closed yesterday.