$JCP call prices quadruple overnight

J.C. Penney surprised the market with strong sales this morning, returning huge gains on option positions opened just one session earlier.

Yesterday Investitute’s market scanners lit up with 28,000 December $3 calls purchased for $0.21 to $0.24 with shares at $2.76. These were clearly new positions, as open interest in the strike was only 1,192 contracts before the activity appeared.

Those calls traded for $0.83 just after the opening bell this morning, 4 times their original purchase price. The stock rose 18.1 percent at the same time, an impressive move but nowhere near 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.

JCP ended today up 14.18 percent to $3.14 after spiking to $3.29 early in the session. The struggling department-store operator blew past same-store sales estimates before the market opened.