$SUM call prices surge 4-fold

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

On June 4, Investitute’s market scanners identified the purchase of 2,000 August $17.50 calls for $0.35 to $0.55 above open interest of 159 contracts with shares at $15.15. Investitute co-founder Jon Najarian cited even more buying in the same strike on CNBC’s “Halftime Report” on June 27.

Those calls traded up to $2.40 today, about 5 times their initial purchase prices. The stock rallied 25.54% 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 reached a session high of $19.21 this morning but then pulled back with the broader market to traded at $18.70 this afternoon, down 3.41% on the day. The construction-materials company has rebounded sharply since double-bottoming below $13.50 in late May and mid-June.