Calls grow in Lumber Liquidators

Bullish traders have doubled their money in Lumber Liquidators.

On April 3, Investitute’s market scanners detected the purchase of 5,000 August $21 calls for $2.45 to $2.55 with shares at $21.40. These were clearly new positions, as open interest in the strike was only 241 contracts before the activity appeared.

Those calls traded for $5 today, double their purchase price. The stock rose 17 percent in that same period, underscoring 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.

LL was up 2.14 percent today to close at $25.31. The flooring retailer gapped down on May 2 after posting a larger-than-expected quarterly loss, but shares sharply rebounded on Wednesday with an upgrade at Wedbush Securities.
The firm raised its price target on the name to $27 from $22.

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