Upside option trades are seeing major returns as PulteGroup and other homebuilders trade at multi-year highs.
On June 13, Investitute’s market scanners found that 2,400 July $24 calls were purchased for $0.66 to $0.74 with shares at $24.08. Volume was well above the strike’s open interest of 976 contracts, showing that this was fresh buying.
Today those calls traded up to $1.22, nearly doubling in value. The stock rose 4.11 percent in the same period, illustrating 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.
PHM was up 0.52 percent to $25.07 today after hitting $25.20 intraday, a 10-year high. The company, which has been rallying with strength throughout the housing industry, is scheduled to report earnings before the market opens on July 25.
(Disclosure: I am long PHM.)