Bulls post fivefold gains in $QD

Qudian spiked higher today, yielding huge returns on upside option positions.

On Nov. 21, Investitute’s market scanners identified the purchase of 2,000 December $5 calls for $0.25 to $0.55 with shares at $5.24. This was clearly fresh buying, as open interest in the strike was only 817 contracts before that session began.

Those calls traded for as much as $2 this afternoon, 5 times their average purchase price. The stock soared 33.21% in the same time frame, a large move but nowhere near 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.

QD surged 19.58% to $6.29 today. The Beijing-based online consumer-credit service announced a new $300 million share-buyback program this morning.