Traders dial up large gains in AT&T

Bullish option positions in AT&T yielded big profits thanks to strong quarterly results.

On July 20, Investitute’s tracking systems found that 10,700 Weekly $36 calls expiring this Friday were purchased mostly for $0.65 with shares at $36.32. These were clearly new positions, as open interest in the strike was only 375 contracts before the activity appeared.

Those calls traded for $2.10 today, more than tripling in value less than a week later. The stock rose just 4.9 percent at the same time, showing how quickly 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.

T jumped 5 percent to close at $38.03 today, its largest one-day rally in more than eight years. The telecom giant beat earnings expectations and lost fewer subscribers that forecast.