Calls show their mojo in $MOMO

Bullish option traders have doubled their money in Chinese company Momo ahead of its earnings report next week.

Last Thursday, Investitute’s proprietary programs showed that 1,200 Weekly $40 calls expiring this Friday were purchased for $0.35 to $0.50 above open interest of 490 contracts. Volume was well above the strike’s open interest of 490 contracts, indicating that this was fresh buying.

Those calls traded for $1.59 today, more than 4 times their initial purchase price. The stock rose 6.2% in the same time frame, showing 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.

MOMO was up 0.38% to $39.89. The Beijing-based social-media platform, which has rebounded in the last six months, is scheduled to announce quarterly results on May 29 before the market opens.