Calls double in $EDU

It took less than a week for option traders to double their money in New Oriental Education & Technology (EDU).

On Apr. 14, Market Rebellion’s Unusual Activity scanners showed that 11,000 May $15  calls were purchased for $0.78 to $0.90 with shares at $14.80. These were clearly new positions, as the open interest in that contract was just 2,579 before the trade occurred.

Those calls traded up to $2.02 this morning, more than twice their purchase prices. The stock rose 13.85% at the same time, underscoring how quickly options can far outpace gains in their 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.

EDU jumped to $16.88 this morning and was last up 5.48% to $15.98 in afternoon trade. The Beijing-based school operator beat earnings estimates this morning.