Upside option positions have been paying off for months in Lumber Liquidators, and today was no exception.
On July 17, Investitute’s tracking systems detected the purchase of 2,600 August $25 calls for $2.40 to $2.50 with shares at $26.05. This was clearly fresh buying, as open interest in the strike was only 369 contracts before the trades occurred.
Today those calls sold for $11.82, representing an average profit of more than 380 percent. The stock surged 41.3 percent in the same period, a huge move but still one that underperformed that of the options. It was the second winning trade in Lumber Liquidators posted on Investitute in a little more than a week.
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.
LL rose 3.39 percent to $37.21 today. The discount-lumber retailer is up sharply since announcing strong quarterly results on Aug. 1.