$PII bulls ride calls to profits

Bullish option traders are riding calls to big gains today in the Polaris (PII).

On Jul. 20, Market Rebellion’s Unusual Activity programs found that 2,000 August $100 calls were purchased for $3.90 as part of a bullish spread with shares at $94.72. This was clearly a new position, as open interest in the strike was only a 969 contracts before the activity appeared.

Those calls traded for as much as $10.52 today, more than 2.5 times their purchase price. The stock rose 14.43% 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.

PII is up 7.59% to $105.40 in late-day trading. The outdoor vehicle company reported a beat on both its top and bottom lines for the second quarter before the opening bell this morning.