$RH call buyers sitting on 700% profit

RH54

Furniture company RH surged on strong quarterly results today, handing exponential gains to bullish option traders.

On Aug. 23, Investitute’s tracking systems found that 2,500 Weekly $46 calls expiring tomorrow were purchased for $3 to $3.25 with shares at $45.57. These were clearly new positions, as open interest in the strike was a mere 16 contracts before the trades occurred.

Today those calls traded for $25.41 today, representing an average profit of more than 700 percent. The stock soared 56.6 percent in that time frame, an enormous move in its own right but still one that paled in comparison to that of its options.

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.

RH rocketed 44.76 percent to $71.54 today. The heavily shorted furniture retailer, formerly known as Restoration Hardware, raised its outlook after beating earnings and revenue estimates in the post-market yesterday.

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Mike Yamamoto

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