Red Hat posted strong earnings and revenue in its last quarterly report, and bullish option traders are continuing to ride the name higher.
On August 22, Investitute’s proprietary programs cited the purchase of 1,500 October $115 calls for $1.70 to $1.75 with shares at $104.79. This was clearly fresh buying, as open interest in the strike was only 101 contracts before the activity appeared.
Those calls traded for $3.35 today, double their original purchase price. The stock rose 12.3 percent in the same time frame, illustrating the kind of leverage that can be achieved through options. It was the second winning call trade in Red Hat posted on Investitute in less than two weeks.
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.
RHT was up a penny to $117.07 at today’s close. The software company has rallied sharply since beating quarterly expectations and raising its outlook on Sept. 25.
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