Bulls double money in $CPE

Option traders have turned quick gains as Callon Petroleum (CPE) has rebounded this week.

On Aug. 27, Market Rebellion’s market scanners identified the purchase of 5,000 September $4 calls for $0.35 with shares at $4.06. This was clearly a new position, as open interest in the strike was only 776 contracts before that session began.

Those calls traded for as much as $0.85 today, about 2.5 times their purchase price. The stock rose 17.98% in the same time frame, showing how quickly 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.

CPE reached a session high of $4.86 in midday trading but is unchanged at $4.71 this afternoon. The energy producer rallied yesterday after billionaire investor John Paulson called on the company to abandon its proprosal to buy Carrizo Oil & Gas (CRZO) for $3.2 billion.