Call prices surge in $VIPS

Vipshop (VIPS) popped to new multi-year highs today, handing exponential profits to bullish option traders.

On Dec, 24, Market Rebellion’s Unusual Activity Service found that 2,900 Weekly $26 calls expiring on New Year’s Eve, this Thursday, were bought for $0.45 to $0.80 with shares at $25.55. This was clearly fresh buying, as open interest in the strike was 230 contracts before the activity appeared.

Those calls traded up to $2.25 today, more than 2.5 times their purchase prices. The stock popped 10.65% in the same time frame, showing how quickly options can far outperform moves in the 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.

VIPS was up 6.36% to $27.76 at the close today. The Chinese discount retailer set new multi-year highs alongside some of its peers as the European Union finalized an investment agreement with China.