$ON bulls flip switch on big gains

Option traders quintupled their money in On Semiconductor today.

On Feb. 16, Investitue’s market scanners identified the purchase of 4,000 March $24 calls for $0.40 as part of a bullish spread with shares at $22.70. Open interest in the strike was only 590 contracts before the activity appeared, showing that this was fresh buying.

Those calls sold for $2.07 late this afternoon, more than 5 times their purchase price. The stock rose 13.6% in the same time frame, underscoring how options can far outperform their underlying shares. Investitute co-founder Jon Najarian cited heavy buying in the March $25 calls yesterday on CNBC’s “Halftime Report.”

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.

ON was up 1.14% today to close at $25.76. The chip maker has rallied along with other semiconductor names as the industry has rebounded in recent weeks.