$AA call buyers double their money

Bullish option traders booked big gains in Alcoa today amid signs of rising demand overseas.

On Sept. 15, Investitute’s market scanners identified the purchase of 2,500 November $44 calls for $3.10 with shares at $44.82. This was clearly fresh buying, as open interest in the strike was only 168 contracts before the trade occurred.

Those calls sold for $6.25 at the end of today’s session, more than double their purchase price. The stock rose 11.8 percent 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.

AA jumped 4.49 percent to $50.08 this afternoon. The aluminum producer, which beat earnings estimates last Wednesday, rallied again today after Chinese reports indicated growing demand.