Synchrony calls surge on earnings

Upside option positions in Synchrony Financial posted big returns before expiring yesterday.

Back on May 24, Investitute’s proprietary programs cited the purchase of 3,900 July $27 calls for $1.10 to $1.25 with shares at $26.90. Open interest in the strike was a mere 2 contracts before the trades occurred, showing that they were new positions.

Those calls sold for $4.57 yesterday, an average gain of nearly 300 percent. The stock was up 15.7 percent in the same period, underscoring how options can far outperform their underlying shares.

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.

SYF rose 4.54 percent to $30.87 yesterday. The financial-services company beat earnings and revenue estimates before the market opened.