Upside option traders are making big profits in The Gap (GPS) today after a gap higher following earnings.
On Nov. 10, Market Rebellion’s Unusual Option Activity Service found that 3,300 November $12 calls were bought for $0.44 to $0.51 with shares at $11.30. This was clearly fresh buying, as open interest in the contract was just 1,731 before the activity appeared.
Those calls have traded for as much as $2.02 so far this session, more than 4 times their average purchase price. The stock rose 23.89% at the same time, underscoring how quickly 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.
GPS was last at $13.64, up 7.15% on the day.