$SUM call prices surge 3-fold

Summit Materials (SUM) has rallied sharply in the last month, yielding exponential gains on bullish option positions.

On Feb. 1, Market Rebellion’s Unusual Activity Service found that 7,500 March $20 calls were bought for $2.60 with shares at $21.09. This was clearly fresh buying, as open interest in the strike was only 13 contracts before the activity appeared.

Those calls have traded up to $8.50 so far today, over 3 times their purchase price. The stock rallied 35.7% in the same time period, a large move but nowhere near that of its 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.

SUM was last at $28.15 this afternoon, up 1.61% on the day. The construction-materials company topped estimates in its latest earnings report delivered on Feb. 23.