Option traders placed bullish bets on ArcelorMittal at the end of last week, and they’re already see big gains on those positions.
On Friday, Investitute’s tracking systems found that 11,000 Weekly $21.50 calls expiring on June 30 were purchased for $0.31 to $0.38 with shares at $21.14. These were clearly new positions, as open interest in the strike was only 21 contracts before the trade appeared.
This morning those calls sold for $0.82, more than doubling in value just two sessions later.The stock is up less than 5 percent in the same time, showing how quickly options can far outperform their underlying shares. Investitute co-founder Pete Najarian cited the unusual activity last week on CNBC’s “Halftime Report.”
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.
MT rose 2.15 percent today to close at $21.87. The company has rallied with other steel makers as analysts have turned increasingly bullish on the industry in recent weeks
(Disclosure: I am long MT.)