Option traders posted big gains today as L Brands reported unexpectedly strong margins.
On Nov. 15, Investitute’s market scanners identified the purchase of 4,000 December $50 calls for $1.79 as part of a bullish spread with shares at $48.93. This was clearly a new position, as open interest in the strike was only 1,449 contracts before the trade occurred.
Those calls sold for $7.20 today, 4 times their original purchase price. The stock rose 16.8 percent in the same time frame, underscoring how options can far outperform their underlying shares. It was the second winning trade in L Brands posted this month, following unusual activity in November calls cited by Investitute co-founder Jon Najarian 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.
LB jumped 6.76 percent to $56.07 today. The apparel retailer rallied after margins came in higher than expected in same-store sales.