Alcoa call buyers forge huge gains

Bullish option traders have tripled their money in Alcoa.

On June 22, Investitute’s tracking systems detected the purchase of 10,000 August $32 calls were purchased for $1.12 as part of a bullish roll with shares at $29.92. This was clearly a new position, as open interest in the strike was only 392 contracts before the trade occurred.

Today those calls went for $3.35, tripling in value. The stock rose 14.2 percent in the same time, showing 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 4.2 percent today to close at $34.02. The aluminum company, which broke back above its 50-day moving average last Wednesday, has rallied along with steel makers other producers recently as analysts have become more positive on the industry.