It took just one session for option traders to quadruple their money in the SPDR S&P 500 Fund.
Last Friday, Investitute’s tracking systems detected the purchase of 141,600 September $249 calls for $0.18 to $0.22 with shares at $246.91. Volume was well above the strike’s open interest of 53,144 contracts, showing that this was fresh buying.
Today those calls traded for $0.83, an average gain of more than 300 percent. The stock was up less than 1 percent at the same time, underscoring the type of leverage that can be obtained with options. Investitute co-founder Pete Najarian, who cited the unusual option activity on Friday, said on CNBC’s “Fast Money” today that the trade provided “a great indication” of where the market was headed.
Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.
SPY rose 1.04 percent to $249.14 today. The exchange-traded fund, which tracks the S&P 500, advanced as equities rebounded from last week’s losses.