$M call prices skyrocket eightfold

Macy’s reported surprisingly strong quarterly numbers this morning, handing huge gains to bullish option traders.

On Feb. 13, Investitute’s tracking systems detected the purchase of 10,000 March $25 calls for $1.43 as part of a bullish spread with shares at $24.56. This was clearly a new position, as open interest in the strike was only 1,213 contracts before the trade occurred. Investitute co-founder Jon Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those calls traded for $6.05 today, more than 8.5 times their purchase price. The stock rose 16% in the same time frame, showing 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.

M spiked to $31.04 early this morning before pulling back with the broader market to close at $28.40, up 3.46% on the session. The department-store operator beat earnings estimates in a sign that its turnaround efforts are working.