$SKX calls post stratospheric gains

Bullish traders scored manifold returns today after Skechers USA blew past quarterly expectations.

On Sept. 14, Investitute’s market scanners identified the purchase of 10,400 October $30 calls for $0.30 to $0.50 with shares at $25.94. These were clearly new positions, as open interest in the strike was only 1,083 contracts before the activity appeared.

Those calls traded for $4.29 at the end of today’s session, more than 14 times their original purchase price. The stock rose 32.2 percent in the same time frame, a huge move but one that still paled in comparison to the gains of its options. Skechers has seen several upside option trades in recent months, which has been cited by Investitute co-founder Jon Najarian 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.

SKX soared 41.45 percent to $33.99 today, its largest single-session rally since going public in 1999. The shoe retailer beat earnings and revenue estimates after the market closed yesterday, prompting Wedbush to upgrade the name to outperform from neutral and raise its price target to $35 from $25.