$DBX call prices surge 10-fold

Option traders are celebrating enormous profits on bullish positions opened in Dropbox (DBX) on New Year’s Eve.

On Dec. 31, Market Rebellion’s Unusual Activity Service flagged the purchase of 6,000 February $20 calls for $0.35 to $0.45 with shares at $17.82. Open interest in the strike was only 212 contracts before that session began, showing that this was fresh buying.

Those calls have traded for as much as $3.50 so far today, 10 times their initial purchase price. The stock surged 32% in the same time period, underscoring how options can far outperform 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.

DBX is up 21.72% to $22.78 this morning. The cloud-based collaboration platform beat earnings and revenue estimates while announcing a $600 million stock buyback plan after the market closed yesterday.