Calls post big gains with $STM at highs

STMicroelectronics (STM) has been running hard this past month, handing big gains to bullish option traders.

On Nov. 24, Market Rebellion’s Unusual Activity Scanners identified the purchase of 5,700 December $40 calls for $0.48 to $0.55 with shares at $37.39. This was clearly fresh buying, as volume was well above the previous open interest of 627 contracts.

Today those calls traded to $2.50, about 5 times their original prices. The stock rallied 11.37% in the same time period, a large gain 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.

STM was up 0.55% to close at $41.99 today a new 52-week high for the Swiss semiconductor maker.