$GWW calls surge ahead of earnings

W.W. Grainger reports quarterly results early next week, and option traders are already posting big gains in upside positions.

On Wednesday, Investitute’s market scanners identified the purchase of 1,500 October $175 calls for $4.65 as part of a bullish spread with shares at $170. Open interest in the strike was 520 contracts before the trade occurred, showing that it was a new position. Grainger has seen upside option activity in three out of the last four sessions.

Those calls traded for $10.03 today, more than double their purchase price. The stock 6.6 percent in the same time frame, illustrating the kind of leverage that can be achieved through options.

Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

GWW was up 1.97 percent today to close at $181.05. The maintenance and repair supply company is scheduled to release earnings results on Tuesday before the market opens.