$PAAS calls deliver payload

Bullish option traders have doubled their money in Pan American Silver (PAAS).

On Aug. 1, Our tracking systems detected the purchase of 10,000 September $18 calls for $0.30 to $0.45 with shares at $15.68. This was clearly a new position, as open interest in the strike was a mere 176 contracts before that session began. Co-founder Pete Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those calls traded for as much as $0.88 today, more than twice their average purchase price. The stock rose 14.35% in the same time period, illustrating the kind of leverage that can be achieved with options.

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.

PAAS is up 1.43% to $17.70 in midday trading. The miner has rallied with the price of precious metals in recent weeks.