$LK brews up strong gains for bulls

Luckin Coffee (LK) has brewed up strong gains for bullish option traders once again.

On Dec. 23, our Unusual Activity Service detected the purchase of 2,600 January $36 calls for $1.10 to $2.10 with shares at $32.47. Open interest in the strike before that session began was just 335 contracts, indicating that this was a new position.

Market Rebellion co-founder Pete Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those calls have traded for as much as $11.52 today, about 5 times their highest purchase price. The stock rocketed 46.2% in the same time period, a huge move but still nowhere near that of its options on a relative basis.

It is the second winning trade in the name to be posted on Market Rebellion in as many weeks.

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.

LK is up 6.34% to $47.99 in afternoon trading. The Chinese coffee company’s price target was raised to $56 from $32 this morning at KeyBanc.