Bulls double money in $PDD

Option traders scored large gains in Chinese e-commerce company Pinduoduo (PDD) today.

On July 25, Our tracking systems detected the purchase of 5,250 October $21 calls for $2.05 to $2.15 with shares at $21.50. This was clearly fresh buying, as open interest in the strike was only 330 contracts before that session began. Co-founder Jon Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those calls traded for as much as $4.66 today, more than twice their purchase prices. The stock rose 16.56% in the same time period, underscoring how options can far outperform their underlying shares on a relative basis.

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.

PDD is up 4.88% to $25.04 in afternoon trading. Jefferies rated the Shanghai-based name as a “buy” with at $26.90 price target on Aug. 5.