Calls fly with Caterpillar at highs

Bullish option traders doubled their money on strong quarterly results from Caterpillar today.

On June 1, Investitute’s market scanners identified the purchase of 8,988 September $110 calls for $3.26 and $3.27 as part of a bullish roll with shares at $106.39. Open interest in the strike was a mere 2 contracts before the trade occurred, showing that it was a new position.

Those calls sold for $6.50 at the end of today’s session, more than doubling in value. The stock rose less than 8 percent in the same time frame, underscoring how options can far 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.

CAT rose 5.88 percent to $114.54 today, its highest close in more than five years. The construction-equipment giant surpassed earnings and revenue expectations before the market opened.