Traders ring up large gains in $KR

Kroger rallied on deal speculation today, turning substantial profits for upside option positions.

On Dec. 4, Investitute’s tracking systems flagged the purchase of 5,300 February $28 calls for $0.75 to $0.84 with shares at $26.85. These were clearly new positions, as open interest in the strike was only 148 contracts before the trades occurred.

Those calls sold for as much as $2.57 today, about 3.5 times their original purchase price. The stock rose 13.3% in the same time period, illustrating the kind of leverage that can be achieved 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.

KR was up 2.65% today to close at $30.26. Shares rose on a Reuters report that Chinese e-commerce giant Alibaba had held negotiations with the grocery chain about a potential deal. Kroger reports earnings on March 8 before the market opens.