$PHM bulls build quick gains

Option traders more than doubled their money today on upside positions opened in PulteGroup (PHM) earlier this week.

On Oct. 21, Market Rebellion’s proprietary programs flagged the purchase of 2,200 November $39 calls for $0.94 to $1.02 with shares at $38.61. This was clearly a new position, as open interest in the strike was a mere 45 contracts before the trade occurred.

Those calls traded for as much as $2.40 today, about 2.5 times their average purchase price. The stock rose 6.37% in the same time frame, 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.

PHM reached a 52-week high of $41.22 before pulling back to $40.72 this afternoon, off 0.77% on the session. The homebuilder beat estimates on its quarterly results Oct. 22.

(Disclosure: I am long PHM.)