$UNP trade turns profit intraday

A large option position in Union Pacific yielded significant gains in just a few hours yesterday.

In midday trading, Investitute’s market scanners flagged the purchase of 20,000 June $120 calls for $9.90 as part of a bullish spread with shares at $122.15. This was clearly a new position, as volume was well above the strike’s open interest of 12,383 contracts.

Those calls ended yesterday’s session trading for $13.25, gaining 34% in three hours. The stock rose 4.8% at the same time, showing how quickly options can far outpace gains in their underlying shares.

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.

UNP spiked higher after yesterday’s call buying and ended the session up 1.94% to $127.28. The railroad operator has posted improving metrics in recent days and raised its quarterly dividend Thursday.