Option traders who piled into AK Steel this morning doubled their money by the afternoon.
About 90 minutes into today’s session, Investitute’s tracking systems detected the purchase of 20,200 February $7 calls for $0.25 to $0.33 with shares at $6.44. Investitute co-founder Pete Najarian cited the unusual activity on CNBC’s “Halftime Report” a few hours later.
Those calls then traded up to $0.53, more than twice their original purchase price, with volume soaring above 52,200 by the end of the day. The stock rose 5 percent at the same time, showing how quickly options can far outpace gains in 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.
AKS jumped 4.56 percent to $6.65 today. The company, which is expected to report earnings on Jan. 30, has rallied along with other steel makers as global demand has risen and President Trump’s infrastructure initiative takes shape.