Call buyers building profits in $HDS

HD Supply has been working its way higher for weeks, resulting in huge returns for bullish option positions.

On Aug. 23, Investitute’s scanners identified the purchase of 1,790 October $32.50 calls for $0.95 with shares at $30.61. Open interest in the strike was 1 contract before the activity appeared, showing that it was fresh buying. Investitute co-founder Jon Najarian discussed heavy buying in the September calls recently on CNBC’s “Halftime Report.

Today those calls traded for $3.90, more than 4 times their purchase price. The stock roses 18.7 percent in the same time period, illustrating the kind of leverage that can be obtained with options.

Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

HDS was off 0.17 percent to close at $36.07 today but has been trending higher in the last two weeks. Part of its strength was tied to increased demand resulting from damage in the recent hurricanes.