Option traders are hanging major profits on Dollar Tree.
On Nov. 15, Investitute’s tracking systems identified the purchase of 3,050 January $92.50 calls for $4.40 to $4.90 with shares at $92.92. These were clearly new positions, as open interest in the strike was only 232 before the trades occurred.
Those calls sold for $16.50 yesterday, nearly 4 times their original purchase price. The stock rose 16.8 percent in the same time period, 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.
DLTR was up 1.27 percent yesterday to close at $108.67. The discount chain beat earnings estimates on Nov. 20 and has been rallying since then along with other retailers.