Relentless $SPY call buyers score

Bullish option traders have piled the SPDR S&P 500 Fund in astronomic numbers recently, and they have posted big gains with the index at record highs.

On Sept. 22, Investitute’s tracking systems found that 40,000 SPY $250.50 calls that expire on Oct. 4 were purchased for $0.63 as part of a bullish roll with shares at $249.23. These were clearly new positions, as open interest in the strike was only 1,300 contracts before the activity appeared.

Those calls ended trading today at $1.19, nearly double their purchase price. The stock was up less than 1 percent in the same time frame, underscoring how quickly options can far outperform their underlying shares.

In several appearances on CNBC, Investitute co-founders Jon and Pete Najarian have repeatedly cited this SPY trade and other large bullish option activity in the exchange-traded fund as a “great indication” of the market’s direction, even at times when it was pulling back.

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.

SPY reached a high of $251.32 today just before closing at $251.23, up 0.32 percent on the session. Both were all-time records for the exchange-traded fund, which tracks the S&P 500 index.