Call buyers riding $KMX to new highs

CarMax accelerated higher on strong quarterly numbers today, handing big profits to bullish option traders.

On July 21, Investitute’s market scanners identified the purchase of 2,900 October $67.50 calls for $3.50 to $3.60 with shares at $65.27. Volume was well above the strike’s open interest of 1,949 indicating that this was fresh buying.

Today those calls sold for $7.10, double their original price. The stock rose 14 percent in the same time period, showing how options can far outperform their underlying shares. Investitute co-founder Jon Najarian cited his winning trade with these calls on CNBC’s “Halftime Report” this afternoon.

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.

KMX jumped 7.77 percent to close at $74.19 today after hitting a 52-week high of $74.60 earlier in the session. The used-car retailer beat earnings and revenue estimates this morning.