$SYF call buyers post enormous gains

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Synchrony Financial rallied with the help of Warren Buffett today, sending bullish option trades soaring.

Last Thursday, Investitute’s market scanners identified the purchase of 3,000 August $30.50 calls for $0.10 to $0.15 with shares at $29.27. Open interest in the strike was just 242 contracts before the trades occurred, showing that they were new positions.

Those calls traded for $0.73 just before today’s closing bell, an average gain of nearly 500 percent less than four sessions later. The stock was up less than 6.2 percent at the same time, illustrating how quickly options can far outpace their underlying shares. It was the second winning call trade that Synchrony has seen in the last month.

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.

SYF jumped 4.55 percent to $30.99 today. Billionaire investor Buffett announced in regulatory filings that he has purchased a 17.5 million shares in the credit-card company for more than $520 million.

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Mike Yamamoto

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