U.S. Steel rallied sharply today, reaping huge rewards for upside option positions opened only 24 hours earlier.
Just yesterday, Investitute’s tracking systems detected the purchase of 4,000 November $26 calls as part of a bullish roll for $1.35 to $1.47 with shares at $25.49. This was clearly a new position, as volume was above the strike’s open interest of 3,403 contracts.
Those calls sold for $2.65 this morning, double their original purchase price. The stock rose 8.6 percent at the same time, 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.
X jumped 7.04 percent to close at $27.36 today. Shares rose amid rising demand from China for industrial materials and a fraud scandal at Japan’s Kobe Steel, which could drive customers to competing producers.