Calls score big again in $IQ

Option traders have tripled their money in upside positions on Chinese company iQIYI.

On Jan. 10, Investitute’s proprietary programs flagged the purchase of 7,000 February $20 calls for $0.52 to $0.62 with shares at $17.62. These were clearly new positions, as volume was far above the strike’s previous open interest of 2,024 contracts. Investitute co-founder Pete Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those calls sold for as much as $1.83 this morning, more than 3 times their average purchase price. The stock rose 22.9% in the same time period, showing how options can far outperform their underlying shares. It is the third winning trade in the name posted on Investitute in the last month.

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.

IQ was up 0.97% to $20.83 today. The Beijing-based online-video service has rallied with other Chinese companies on hopes that U.S. trade talks will see progress.