$LB calls turn big profits

Option traders are turning big profits on bullish positions opened in L Brands (LB) less than three weeks ago.

On Jan. 9, our Unusual Activity Service showed that 3,000 Weekly $18 calls expiring on Jan. 31 were bought for $1.30 to $1.40 with shares at $18.61. Volume was well above above the strike’s previous open interest of just 55 contracts, showing that these were new positions.

Those calls have traded for as much as $5.90 today, more than 4 time their purchase prices. The stock rose 24.93% in the same time frame, underscoring how quickly options can far outperform their underlying shares.

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.

LB is up 12.91% to $23.22 this morning after a Wall Street Journal reported that it may be exploring a sale of its Victoria’s Secret brand. The retailer, whose brands also include Bath & Body Works, is scheduled to report earnings on Fe. 26 after the market closes.