Lumber Liquidators calls pay off

Bullish option trades are turning significant profits as Lumber Liquidators rebounds.

On April 3, Investitute’s market scanners found that 5,000 August $21 calls bought mostly for $2.45 to $2.55 with shares at $21.40. Open interest in the strike was only 241 contracts before the trades appeared, showing that they were new positions.

Today those calls were marked at $5.95, more than doubling in value. The stock has risen 23.6 percent in that time, highlighting the kind of leverage that can be achieved through 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.

LL jumped 6.14 percent today to close at $26.45. The flooring retailer had been falling steadily since hitting a 52-week high of $30.65 on May 22, but shares have bounced sharply since hitting their rising 50-day moving average at the end of last week.