It took less than a week for upside option positions to see enormous gains in Lululemon Athletica.
On Tuesday, Investitute’s tracking systems detected the purchase of 1,280 October $59.50 calls for $0.45 to $0.67 with shares at $58.96. Open interest in the strike was only 395 contracts, indicating that this was fresh buying.
Those calls traded up to $3.44 late today, more than 7 times their original purchase price. The stock rose 5.8 percent at the same time frame, showing how quickly options can far outpace gains in 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.
LULU jumped 5.33 percent to $63.29 today. The athletic-apparel retailer rallied after Citigroup upgraded the name to “buy” from “neutral” and raised its price target to $73 from $62 this morning.