$XHB call buyers build profits

The SPDR S&P Homebuilders Fund (XHB) set a new all-time-closing-high today, returning large gains on upside option positions.

On Oct. 27, Market Rebellion’s Unusual Activity Service found that 4,640 December $80 calls, expiring next Friday, were bought for $1.10 as part of a bullish spread above the existing open interest of 782 contracts with shares at $76.98.

Those calls traded up to $6.20 today, more than 5.5 times their purchase price. The stock rose 11.44% at the same time, showing how options can quickly outperform their underlying shares by a wide margin.

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.

XHB closed higher on the day by 0.92% to $86.27.