$X call prices skyrocket eightfold

U.S. Steel reached a seven-month high today, handing huge gains to upside option positions opened just last week.

On Nov. 15, Investitute’s tracking systems showed that 4,800 Weekly $26.50 calls expiring today were purchased for $0.38 to $0.59 with shares at $26.19. These were clearly new positions, as open interest in the strike was only 231 contracts before the trades occurred.

Those calls sold for $2.95 this morning, nearly 8 times their original purchase price. The stock rose 12.5 percent in the same time frame, illustrating how quickly options can far outperform gains in their underlying shares. Investitute co-founder Jon Najarian outlined the case for buying November calls in a recent appearance on CNBC’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.

X was up 2.46 percent to $29.21 today. Steel makers have rallied in recent days on indications of growing demand in China and other countries.