Patience pays for $TLT calls

Option traders have more than doubled their money on upside positions opened in the iShares 20+ Year Treasury Fund (TLT) early this year.

On Jan. 31, Investitute’s proprietary programs flagged the purchase of 2,000 June $123 calls for $2.29 as part of a bullish spread with shares at $121.80. Open interest in the strike was only 289 contracts before the trade occurred, showing that this was fresh buying.

Those calls traded for as much as $5.82 this afternoon, more than 2.5 times their purchase price. The stock rose 5.67% in the same time period, underscoring how options can far outperform 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.

TLT was up 0.79% to $128.79 today. The exchange-traded fund has risen sharply as investors have piled into bonds even as equities rallied this year.