$TBT calls yield unusual gains for bulls

Option traders collected a big positive yield on upside positions in the ProShares UltraShort 20+ Year Treasury Fund (TBT) today.

Way back, on Aug. 12, Market Rebellion’s Unusual Activity programs flagged the the purchase of 5,000 March $16 calls for $1.32 as part of a complex bullish spread with shares at $15.43. Volume was clearly above the previous open interest of 52 contracts, indicating that this was a new position.

As part of the complex spread, an additional 5,000 December $21 calls were sold for $0.21 and an equivalent number of March $15 puts were also sold for $1.40; as the trade was a bullish combo in March, financed by short December calls as a diagonal spread and brought the cost basis in the entire trade to a net credit of $0.29.

Those March $16 calls were last marked for $5.65, over 4 times their purchase price. The stock rose 1.77% in the same time frame, illustrating the kind of leverage that can be achieved quickly with options. However, with the December calls having expired out of the money, and the March $15 puts last marked at $0.02, the whole trade that collected a $0.29 credit to put on, was last worth $5.63 to close out of, an impressive, and very unusual return.

Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

TLT was last up 4.27% to $21.72 today. The exchange-traded fund has risen alongside Treasury yields.