$KBH calls turn huge gains in hours

$KB Home is the latest housing builder to report strong quarterly numbers, and bullish traders are reaping enormous rewards.

Less than two hours before the company reported earnings yesterday afternoon, Investitute’s market scanners identified the purchase of 4,700 October $23 calls for $0.27 to $0.35 with shares at $21.91. These were clearly new positions, as volume was well above the strike’s open interest of 1,775 contracts.

Today those calls traded up to $1.70, more than 6 times their original purchase price. The stock jumped 12.1 percent at the same time, showing how quickly options can far outpace gains in its 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.

KBH finished today’s session up 8.55 percent at $24.12. The homebuilder topped earnings and revenue expectations after the market closed yesterday.