NEW YORK -- It didn't take long for option traders to turn profits in Kellogg (K) on Thursday.
OptionMonster's Heat Seeker tracking system detected the purchase of more than 3,000 January 72.50 calls for 15 cents and 20 cents in the morning. The stock pushed higher, and those options traded for as much as 55 cents by the afternoon --a gain of 100% to 200% in a matter of hours.
That kind of leverage results from that fact that calls cost so much less than their underlying shares. Investors use the contracts to lock in levels where the stock can be purchased, profiting from a rally with potentially significant leverage while limiting losses if shares decline.
K was up about 2% when the calls hit, but the stock then rallied 3.57% to $67.10. The cereal maker bucked a late-day slide in the S&P 500 and ended the session at its highest level since mid-June.
Total option volume in the name was seven times greater than average in the session, with overall calls outnumbering puts by a bullish 24-to-1 ratio.
Kellogg has seen bullish option activity repeatedly in recent months. On Sept. 29, traders snapped up December 62.50 calls, which nearly tripled in value several weeks later. Bulls came back to the name on Nov. 19, buying the December 67.50 calls.
-- Written by David Russell of OptionMonster
Russell has no positions in K.