Bulls watch big gains in $DISCA

Discovery Communications (DISCA) rose sharply after earnings today, delivering big gains to upside option traders.

On Dec. 29, Market Rebellion’s Unusual Activity Service found that 3,850 March $32.50 calls were bought for $1.30 to $1.35 with shares at $29.67. This was clearly fresh buying, as open interest in the strike was only 83 contracts before the activity appeared.

Those calls sold for as much as $23.20 today so far, at least 17 times their purchase prices. The stock rose 87.8% in the same time frame, showing how quickly options can far outperform moves in 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.

DISCA was last up by 8.16% to $54.94this afternoon. The media company topped earnings estimates this morning in its quarterly report.