$MU call buyers make big profits

It took just under a week for bullish option traders to make exponential gains in Micron Technology (MU).

Last Friday, on Aug. 30, Our market scanners identified the purchase of 7,000 Weekly $47 calls, expiring tomorrow, for $0.37 as part of a bullish spread with shares at $45.39. This was clearly a new position, as open interest in the strike was only 1,093 contracts before the activity appeared. Co-founder Jon Najarian cited the unusual activity at that time on his “60 Seconds” daily market update.

Those calls sold for as much as $2.59 today, 7 times purchase price. The stock rose 9.25% in the same time frame, showing how quickly options can far outpace gains in their underlying shares.

Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

MU is up 5.16% to $49.22 in mid-morning trading. The memory-chip maker is rallying sharply today, while trade talks are expected to resume between the U.S. and China in October.