$PHM calls soar 8-fold overnight

Option traders made a killing today on bullish option positions opened in PulteGroup just one session earlier.

Just yesterday, Investitute’s market scanners found that 2,000 Weekly $28.50 calls expiring this Friday were purchased for $0.27 to $0.34 with shares at $28.23. This was clearly fresh buying, as open interest in ghte above open interest of 8 contracts. Stock 28.23. EPS 4/24 before open.

Those calls traded for $2.11 at the end of today’s session, nearly 8 tmes their initial purchase price. The stock rose 8.3% 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.

PHM jumped 6.35% to $30.50 today. Homebuilders rallied after Lennar posted strong quarterly results this morning.

(Disclosure: I am long PHM.)