Traders build large profits in $PHM

PulteGroup surpassed quarterly expectations on strong demand today, turning large profits for bullish option positions.

On Sept. 12, Investitute’s proprietary programs cited the purchase of 3,500 January $26 calls for $1.55 to $1.73 with shares at $26.48. These were clearly new positions, as open interest in the strike was only 579 contracts before the activity appeared.

Those calls traded for $3.15 this morning, double their original purchase price. The stock rose 9.1 percent in the same time period, illustrating the kind of leverage that can be achieved with options.

Long calls lock in the price where a 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 themselves.

PHM was up 2.8 percent today to close at $28.68. The homebuilder beat earnings estimates before the market opened this morning.

(Disclosure: I am long PHM.)