How $T calls skyrocketed 12-fold

Traders pocketed enormous gains from bullish options in AT&T before the contracts expired today.

On Nov. 14, Investitute’s market scanners found that 2,600 Weekly $36 calls that expired this afternoon were purchased for $0.25 with shares at $33.83. This was clearly fresh buying, as open interest in the strike was a mere 63 contracts before the trades occurred.

Those calls sold for $3.03 just before today’s closing bell, more than 12 times their purchase price. The stock rose 15.4 percent in the same time period, underscoring how options can far outperform their underlying shares. Investitute co-founder Pete Najarian cited even more buying in AT&T April $37 calls on CNBC’s “Halftime Report” earlier this month.

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.

T closed today at $38.88, off 0.77 percent on the session. The telecom carrier has rallied amid speculation that its proposed takeover of Time Warner may not go through. The judge presiding over the federal government’s challenge to the acquisition has set a March 19 trial date but said no ruling would be made before the deal’s April 22 deadline.