Colgate-Palmolive was one of the few winners in today’s market selloff, and bullish option traders were among the primary beneficiaries.
On Monday, Investitute’s proprietary programs identified the purchase of 2,500 June 72.50 calls for $1.05 to $1.20 with shares at $71.82. These were clearly new positions, as volume was well above the strike’s open interest of 987 contracts.
Those calls traded for $4.90 just before today’s close bell, a gain of more than 300 percent in only three days. The stock was up less than 5.4 percent in the same time, showing how far options can 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.
CL jumped 5.74 percent to $75.69 today. Shares surged after reports that Colgate’s CEO had told investors he would be open to selling the company for $100 a share.
The household-products giant is scheduled to report earnings before the market opens on July 21.