Bears give way to bulls on $XPO

Nimble option traders made money as XPO Logistics fell last week, and today they turned profits on the upside.

On Nov. 13, buyers posted ninefold gains on January $50 puts flagged by Investitute’s tracking systems just a few hours earlier. That same day, 2,200 January $60 calls were purchased for $1.08 to $1.80 above open interest of 1,642 contracts with shares at $53.45.

Those calls traded up to $2.90 this morning, twice their average purchase price. The stock rose 5.78% in the same time frame, showing how options can far outperform their underlying shares.

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.

Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.

XPO reached a high of $56.82 this morning before pulling back with the broader market to close at $52.25, down 2.94% on the session. Last week the transportation-logistics company disclosed that earnings growth might fall below estimates, news that was followed by a critical report from short-selling firm Spruce Point Capital Management.