$YUMC calls prices jump 3-fold

Option traders tripled their money on bullish positions opened in Yum China earlier this week.

On Jan. 28, Investitute’s tracking systems detected the purchase of 3,500 March $37.50 calls for $0.95 to $1 with shares at $35.38. This was clearly fresh buying, as open interest in the strike was a mere 23 contracts before the activity appeared. Investitute co-founder Pete Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those calls sold for $3.52 this morning, more than 3.5 their purchase prices. The stock rose 14.58% in the same time frame, 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.

YUMC jumped 7.96% to $39.35 today. The operator of restaurants in China, including KFC, Pizza Hut, and Taco Bell, rallied after reporting quarterly results yesterday.