Steel makers have been big winners for upside options in recent months, and today was ArcelorMittal’s turn to post significant profits for traders.
On Tuesday, Investitute’s market scanners found that 10,500 Weekly $27 calls that expire on Sept. 8 were purchased for $0.22 to $0.32 with shares at $26.44. Open interest in the strike was a mere 50 contracts before the trades occurred, showing that they are new positions.
Today those calls traded up to $0.62, more than doubling in value after four sessions. The stock was up less than 3.6 percent in the same time, illustrating how quickly options can far outpace gains in their 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.
(Disclosure: I am long MT.)