Why call prices tripled in $KORS

Options traders have rung up large profits in Michael Kors.

On May 30, Investitute’s market scanners identified the purchase of 3,000 July $62.50 calls as part of a bullish spread for $1.40 and $1.50 with shares at $59.88. Open interest in the strike was a mere 9 contracts before the activity appeared, showing that this was fresh buying.

Those calls ended today’ session marked at $4.80, more than 3 times their purchase prices. The stock rose 12.17% in the same time period, underscoring how options can far outperform 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.

KORS was up 0.93% to $67.17 today. The apparel retailer has underperformed the rest of the industry this year, but HSBC recently initiated coverage on the name with a “buy” rating and an $88 price target. The company’s next quarterly results are expected on Aug. 7.