Calls surge as $GNRC powers higher

Traders opened bullish option positions in Generac as Hurricane Harvey strengthened last week, and those calls are seeing exponential returns today.

On Aug. 24, Investitute’s tracking systems identified the purchase of 2,900 September $37.50 calls $0.40 to $1.15 with shares at $37.68. These were clearly new positions, as open interest in the strike was only 115 contracts before the activity appeared.

Today those calls traded up to $2.94, an average gain of nearly 300 percent. The stock rose 6.82 percent in the same time period, illustrating how options can far outpace gains in 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.

GNRC was up 2.36 percent to $40.38 today. The manufacturer of power generators spiked higher when Harvey was upgraded to hurricane status last week, and shares have continued to climb since.