Traders win big with $SPY at highs

Bullish option positions posted huge profits today as the SPDR S&P 500 Fund traded at record levels.

On Sept. 21, Investitute’s tracking systems flagged the purchase of 40,000 December $257 calls for $1.13 with shares at $249.77. This was clearly fresh buying, as volume was far above the strike’s open interest of 14,610 contracts.

Those calls ended today’s session at $9.82, more than 8.5 times their purchase price. The stock rose 6.7 percent in the same time period, illustrating how options can far outpace gains in their underlying shares.

In several appearances on CNBC in recent months, Investitute co-founders Jon and Pete Najarian have repeatedly cited this SPY trade and other large bullish option activity in the exchange-traded fund as a “great indication” of the market’s direction, even at times when it was pulling back.

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.

SPY was up 1.35 percent to $266.50 today. The exchange-traded fund, which tracks the S&P 500, ended the session just off its all-time closing high of $266.78 reached on Tuesday.