Mettle pays off for bulls in AK Steel

Option traders doubled their money in one week on AK Steel.

Last Friday, Investitute’s tracking systems found that 3,500 Weekly $6.50 calls that expired today were purchased for $0.14 to $0.16 with shares at $6.21. Volume was well above the strike’s open interest of 1,937 contracts, indicating that this was fresh buying.

Today those calls climbed to $0.30, doubling in value. The stock rose 9.5 percent in the same time frame, underscoring 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.

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.

AKS jumped 5.56 percent to close at $6.65 today after Deutsche Bank upgraded it and rival U.S. Steel to “buy” from “hold,” with respective price targets of $10 and $30. Analysts have turned increasingly bullish on steel makers in recent weeks, as Investitute co-founder Pete Najarian noted on CNBC’s “Fast Money” this afternoon while citing heavy call buying in ArcelorMittal.