Calls drive higher with CarMax

Bullish option trades turned exponential gains as CarMax.

On April 7, Investitute’s tracking systems detected the purchase of 25,522 July $57.50 calls for $3.20 with shares at $55.73. This was clearly a new position, as open interest in the strike was a mere 134 contracts before that session began.

Those calls traded up to $8.70 today, gaining more than 170 percent. By contrast the stock rose 15.6 percent in the same period, showing how options can outperform their underlying shares.

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 6.15 percent today to close at $63.71. The used-car retailer, a target of noted short-seller Jim Chanos, squeezed higher today after receiving an upgrade from Wedbush Securities. The firm raised CarMax to “outperform” from “neutral” and increased its price target on the name to $70 from $60.