Lumber Liquidators calls soaring

Blowout earnings by Lumber Liquidators led to enormous gains for bullish option positions.

Just yesterday afternoon, Investitute’s market scanners found that 3,500 Weekly $26 calls expiring this Friday were purchased for $1.04 as part of a bullish spread with shares at $27.01. This was clearly a new position, as open interest in the strike was only 205 contracts before the trade occurred.

Those calls sold for $7.08, a gain of more than 580 percent in less than 24 hours. The stock rose 21.7 percent at the same time, a bit move but nowhere near that of the options.

Long calls lock in the price where the 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.

LL spiked higher by 35.94 to close today at $33.59. The discount lumber retailer rallied hard after reporting a surprise profit and surpassing sales expectations in quarterly results this morning.