Bulls scale new heights in Pinnacle

Traders employed a longer-term bullish strategy in Pinnacle Foods early this year, and it has been well worth the wait.

Back on Feb. 2, Investitute’s proprietary programs showed that 3,500 September $60 calls were purchased for $1.55 and $1.60 while 5,000 September $50 puts were sold for $2.00. Volume in both strikes dwarfed open interest, showing that these were new positions. Shares traded for $54.44 at the time.

Today those calls traded for $5.80–a profit of more than 260 percent–while the put sale has yieled a similar percentage return, as they have dwindled to $0.55. The stock, meanwhile, has risen less than 14.5 percent in the same period, illustrating the leverage that can be achieved through options.

Such combination trades are especially bullish because a rally boosts the price of the long calls while decreasing the value of the puts that were sold. Calls lock in the price where the stock can be purchased, gaining with a rally and providing leverage to the underlying shares with limited risk. The sale of the puts reduces the overall cost of the strategy but obligates the trader to sell shares at a certain price if they fall.

PF rose 2.74 percent today to close at $62.31. The packaged-food company has been grinding higher all year along with other consumer staples.