Call prices surge ninefold in $DG

Dollar General rallied on strong sales today, handing huge gains to upside option traders.

Back on June 16, Investitute’s tracking systems detected the purchase of 7,500 January $80 calls for $1.75 and $1.80 with shares at $68.72. This was clearly fresh buying, as open interest in the strike was only 494 contracts before the trade occurred.

Those calls traded up to $15.30 this morning, nearly 9 times their original purchase price. The stock has surged 38.3 percent since those contracts were purchased, a large move but still nowhere near that of its options.

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.

DG was up 2.77 percent to $93.37 today. The discount retailer beat revenue expectations and lifted its outlook before the market opened this morning.