Calls pay off in Lumber Liquidators

Traders have turned sizable profits in Lumber Liquidators this month.

On April 3, Investitute’s tracking systems detected the purchase of 5,000 August $21 calls mostly for $2.45 to $2.55. This was clearly fresh buying, as the volume was well above the strike’s open interest of 241 contracts at the beginning of that day. Shares traded around $21.40 at the time.

Those calls have since risen to $3.75, a gain of some 50 percent. The stock has advanced only about 6.7 percent in the same period, illustrating the kind of leverage that can be achieved with 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.

LL rose 4.05 percent to close at $22.84 today. The flooring company gapped up after its last earnings report in mid-February and continued to gain 27 percent since then as many homebuilders are related equities have shown increasing strength.