Why $HFC calls increased fivefold

Bullish option positions are drawing exponential returns from HollyFrontier’s strong quarterly numbers.

On Aug. 25, Investitute’s market scanners identified the purchase of 1,400 December $30 calls bought for $1.83 and $1.84 as part of a bullish spread with shares at $29.47. This was clearly a new position, as open interest in the strike was only 808 contracts before the trade occurred.

Those calls were marked at $10.35 at the end of today’s session, more than 5.5 times its original purchase price. The stock rallied 36.6 percent in the same time period, a huge move but one that still paled in comparison to that of its 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.

HFC was up 1.51 percent to $40.25 today. The oil refiner beat quarterly results last night, leading to upgrades from Goldman Sachs and Barclays today.