Bullish traders turn quick gains in $AA

Upside option positions scored big gains in Alcoa as shares reached new highs today.

On Tuesday afternoon, Investitute’s scanners showed that 2,500 Weekly $39 calls expiring tomorrow were purchased for $1.06 as part of a bullish roll with shares at $39.75. This was clearly a new position, as open interest in the strike was only 414 contracts before the trade occurred. That same day, Investitute co-founder Pete Najarian cited even more call buying in October on CNBC’s “Halftime Report.”

Today those calls traded for $2.28, more than doubling in value less than two full sessions later. The stock was up less than 3.8 percent at the same time, showing how quickly options can far outperform their underlying shares. It was the second winning Alcoa call trade posted on Investitute in a little more than a week.

$AA call buyers post gains of 550%

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 rose 0.68 percent to close at $41.34 today after hitting a new 52-week high of $41.55 earlier in the afternoon. The aluminum company has rallied along with other industrial-metal producers amid growing pressure for trade restrictions against China at the same time that demand is rising in that country.