$LL call prices surge fivefold

Option traders logged exponential profits on bullish positions in Lumber Liquidators (LL) today.

On Aug. 12, Our market scanners identified the purchase of 5,200 September $10 calls for $0.15 to $0.25 with shares at $8.22 This was clearly fresh buying, as open interest in the strike was only 733 contracts before the activity appeared.

Those calls traded for as much as $1.11 today, more than 5.5 times their average purchase price. The stock surged 32.36% in the same time period, a large move but still nowhere near 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.

LL reached a session high of $10.90 in early afternoon trading but pulled back to close at $10.08, still up 8.86% on the session. The discount lumber retailer rallied late yesterday on speculation of a deal with Cabinets to Go.