Traders reaped huge profits from bullish positions in RH.
On March 23, Investitute’s market scanners found that 4,000 May $40 calls were bought for $1.60 to $1.85 with shares at $37.42. Open interest in the strike was only 2,190 contracts before the activity appeared, showing that this was fresh buying.
Today those calls traded for $13, more than 5 times their purchase price, with the stock at $52.68. Even with a huge gain of more than 40 percent in that same period, shares did not even come close to the enormous returns of the options–a testament to the kind of leverage that an be achieved through 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.
RH, formerly known as Restoration Hardware, was up 0.21 percent to close at $51.86 today. The upscale furniture retailer gapped up from $38 with strong quarterly results on March 28 and have been grinding higher since.