$VALE call buyers turn profit of 300%

Traders keep piling into bullish options on mining company Vale, and today they were reaping the rewards.

On Aug. 21, Investitute’s tracking systems detected the purchase of 5,100 September $10.50 calls in one print for $0.25 with shares at $10.12. This was a new position, as there was no open interest in the strike before the activity appeared.

Today those calls traded up to $1, a gain of 300 percent. The stock rose 13.1 percent in the same time frame, showing how options can far outperform their underlying shares.

The trade was highlighted on CNBC by Investitute co-founder Pete Najarian at the time it was opened about two weeks ago. Then this afternoon, he cited even more buying in the October $12 calls on the network’s “Halftime Report.”

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.

VALE rose 2.08 percent today to close at $11.30. The materials sector has been favored recently by several analysts, including Jefferies, which upgraded it two notches to “sector overweight” from “underweight” on Tuesday because of higher commodity prices, favorable currency rates, and rising demand by foreign countries. Companies may also benefit from rebuilding efforts in the storm-torn Gulf of Mexico.