$XLP bulls quintuple their money

Upside option positions placed in the SPDR Consumer Staples Fund soared today as investors’ worries over bond yields tapered.

On June 8, Investitute’s market scanners found that 15,000 August $52 calls were purchased for $0.48 to $0.50 with shares at $50.73. These were clearly new positions, as open interest in the strike was only 325 contracts before the activity appeared.

Those calls traded as high as $2.62 today, more than 5 times their initial purchase prices. The stock rose 5.47% in the same time frame, illustrating the kind of leverage that can be achieved with options.

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.

The XLP was up 1.17% to close at $54.29 today. The yield on the U.S. 10-year note closed at 2.953%, flat from its level in June, prompting investors to buy consumer-staple stocks that offer relatively high dividends as an alternative to Treasuries.