$TOL call prices spike 4-fold

Bullish option traders are building big profits in Toll Brothers (TOL).

On Sept. 13, Market Rebellion’s activity scanners identified the purchase of 10,000 October $40 calls for $0.50 to $0.65 with shares at $38.62. This was clearly new positioning, as open interest in the strike was a mere 93 contracts before that session began.

Those calls traded for as much as $2.05 today, more than 4 times their initial purchase price. The stock rose 6.4% in the same time frame, illustrating the kind of leverage that can be achieved quickly with options.

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.

TOL reached a session high of $41.15 early this morning but pulled back to $40.61 this afternoon, off 0.38% on the day. Homebuilders have been rising steadily with lower interest rates all year.