Call buyers post 450% profit in $DLTR

Strong earnings by Dollar Tree translated to huge gains for bullish option positions today.

On July 24, Investitute’s proprietary programs found that 4,000 September $72.50 calls were purchased for $1.85 and $1.90 with shares at $68.94. There was no open interest in the strike before the trades occurred, showing that they were new positions.

Those calls traded as high as $10.40 today, representing a profit of more than 450 percent. The stock rose 19.1 percent in the same time period, illustrating the kind of leverage that can be obtained through options.

Long calls lock in the price where the 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.

DLTR jumped 5.62 percent today to close at $78.50 after peaking at $82.25 in the morning. The discount retailer beat earnings and sales estimates before the market opened.