Call prices triple in $WDC

Bullish option traders showed strong conviction in Western Digital (WDC) recently, and their bets paid off big today.

Earlier this month, Investitute’s market scanners identified unusual activity in the same strike on consecutive sessions:

-On June 13, 16,000 January $55 calls were purchased for $0.93 above open interest of 1,525 contracts as part of a bullish spread with shares at $36.45.
–On June 14, 2,000 January $55 calls bought for $0.97 below open interest of 26,155 contracts but apparently adding to the previous day’s volume with shares at $36.12.

Investitute co-founder Jon Najarian cited the initial unusual activity on June 13, on CNBC’s “Halftime Report.”

Those calls traded for as much as $2.70 today, about 3 times their initial purchase price. The stock rose 24.2% in the same time period, 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.

WDC is up 6.89% to $43.93 heading into the final hour of trading today. Craig-Hallum upgraded the data-storage device maker to “buy” from “hold” with a $54 price target this morning, following Micron’s quarterly results.