Bulls triple money in $DO

Option traders have racked up exponential gains on upside positions in Diamond Offshore (DO).

On Nov. 19, Market Rebellion’s Unusual Activity Service flagged the purchase of 4,100 January $5 calls for $0.83 to $0.93 with shares at $5.34. This was clearly fresh buying, as open interest in the strike was only 337 contracts before that session began.

Those calls have traded for as much as $2.60 so far today, about 3 times their average purchase price. The stock surged 42.7% in the same time period, a huge move but still far below 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.

DO is down 3.16% to 7.51 this morning, but the oil driller has rallied sharply in the last month as the price of crude has risen.