Call prices rocket 7-fold in $TWTR

Twitter rose today after JPMorgan raised its price target ahead of the World Cup in Russia, handing exponential gains to bullish option traders.

On May 21, Investitute’s proprietary programs showed that 3,230 $36 calls expiring on July 20 were purchased from $1.13 to $1.22 with shares around $33.30. These were clearly new positions, as open interest in the strike was only 1,185 contracts before the activity appeared. Investitute’s co-founder Pete Najarian cited the unusual call buying in the name that day on CNBC’s “Halftime Report.”

These investors may have positioned their call buying to reflect their bullishness in the underlying shares of TWTR, as its annual shareholders’ meeting was scheduled to take place on May 30. The stock was also presenting a bullish inverse-head-and-shoulders chart pattern that may have added to their thesis.

Those July $36 calls were sold for as much as $8.75 today, more than 7 times their original purchase price. The stock rose 33.7% in the same time frame, a large move but still 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.

Twitter was up 1.36% to close at $44.08 today. Tailwinds have kept building for TWTR since the initial call buying, from inclusion in the S&P 500 Index to multiple upgrades by analysts.