Furniture retailer RH rocketed higher today, returning exponential profits on upside option positions.
On Oct. 13, Investitute’s tracking systems detected the purchase of 2,500 November $100 calls for $0.40 to $0.60 with shares at $80.77. This was clearly fresh buying, as open interest in the strike was only 746 contracts before the activity appeared.
Those calls traded up to $6 today, more than 15 times their original purchase price. The stock rallied 31.2 percent in the same time period, a huge move but nowhere near the gains of its options on a relative basis. Investitute co-founder Jon Najarian updated that winning trade on CNBC’s “Halftime Report” this afternoon.
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.
RH soared 25.82 percent to $104.81 today. The upscale furniture company, formerly known as Restoration Hardware, surged on strong guidance after the market closed yesterday.