Call buyers riding rebound in $CBI

CBI has climbed steadily off multi-year lows in the last month, and upside option positions are seeing exponential returns as a results.

On Aug. 24, Investitute’s market scanners found that 3,100 October 12.50 calls were purchased for $0.60 to $0.74 with shares at $11.20. Volume was well above the strike’s open interest of 1,690 contracts, indicating that these were new positions.

Today those calls sold for $4.12, more than six times their original price. The stock surged 47 percent in the same period, but even that huge move was far below that of its options on a relative basis.

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.

CBI, formerly Chicago Bridge & Iron, jumped 7.32 percent to $16.28 today. The heavily shorted construction and engineering company has won several contracts recently and was the subject of takeover rumors this morning.