Why $NUE calls rocketed sixfold

Bullish option traders have been piling money into Nucor all month, and those positions are already yielding exponential returns.

On Dec. 1, Investitute’s market scanners identified the purchase of 10,300 January $60 calls for $0.75 to 1.21 with shares at $58.16. These were clearly new positions, as open interest in the strike was only 2,548 contracts before the trades occurred.

Those calls sold for $4.85 at the end of today’s session, 6.5 times their original purchase price. The stock rose 11.1 percent in the same time frame, underscoring how options can far outperform their underlying shares.

It was the second winning trade in Nucor posted on Investitute in as many weeks. Investitute co-founder Pete Najarian noted that the name has been the target of bullish option activity several times since the beginning of the month and cited more buying in the January $70 calls today on CNBC’s “Halftime Report.”

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.

NUE was up 0.05 percent today to close at $64.56. The company has rallied sharply along with other steel makers in the last two months, first with government anti-dumping measures against foreign importers and then with optimism over tax cuts and infrastructure programs in 2018.