$MDR bulls double their money

McDermott (MDR) has drawn upside option activity for weeks, and those positions are paying off today.

On June 11, Investitute’s market scanners flagged the purchase of 5,000 November $8 calls for $1.30 as part of a bullish spread with shares at $7.59. This was clearly a new position, as volume was well above the strike’s previous open interest of 852 contracts.

Those calls traded for as much as $3.50 today, more than 2.5 times their purchase price. The stock has surged 40.18% in the same period, a huge move but still well below that of its options 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.

MDR spiked to a session high of $10.99 this morning but has pulled back to trade at $10.17 in midday trading, still up 9.3% on the day. The energy construction and engineering company has announced several major contracts with Saudi Aramco this week.