$RH call buyers score big profits

A strong earnings report by RH translated large returns for bullish option traders today.

On Nov. 26, Investitute’s market scanners identified the purchase of 2,000 January $115 calls for $11.60 as part of a bullish spread with shares at $114.81. This was clearly a new position, as volume was about twice the strike’s open interest of 1,015 contracts before that session began.

Those calls traded for as much as $33.45 today, almost 3 times their purchase price. The stock rose 27.84% in the same time frame, a huge move but still far below that of their 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.

RH spiked to $148.54 this morning but pulled back with the rest of the market to close at $137.13, still up 10.9% on the session. The furniture retailer topped quarterly estimates and raised its outlook after the market closed yesterday.