How $YUMC bulls raked in profits

Traders opened upside positions in Yum China six months ago, and their patience has paid off with exponential gains.

Way back on April 6, Investitute’s market scanners identified the purchase of 2,000 October $32.50 calls for $2.10 as part of a bullish spread with shares at $31.21. This was clearly a new position, as open interest in the strike was only 123 contracts before the activity appeared.

Today those calls traded up to $8.70, more than 4 times their purchase price. The stock rallied 30.7 percent in the same time period, a huge move but one that was still far below that of its options on a relative basis.

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.

YUMC rose 2.13 percent to $40.82 today. The operator of Chinese restaurants, which was spun off from Yum Brands last year, missed earnings estimates last night but expanded its stock-repurchase program and announced its first dividend.