$M call buyers ring up gains

Macy’s surged on strong quarterly numbers today, handing exponential profits to upside option traders.

On May 10, Investitute’s tracking systems detected the purchase of 5,100 May $28.50 calls for $1.37 to $1.93 with shares at $29.40. This was clearly fresh buying, as open interest in the strike was a mere 85 contracts before the activity appeared.

Those calls traded for $4.55 today, more than 3 times their initial purchase price. The stock rose 15.2% in the same time frame, underscoring how 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.

M jumped 10.83% to $33.17 today. The department-store operator blew past earnings and sales expectations while raising its outlook this morning.