$DO bulls turn big profit in hours

Option traders who opened bullish positions in Diamond Offshore Drilling this morning were reaping big rewards by the afternoon.

Less than half an hour after the opening bell, Investitue’s tracking systems detected the purchase of 5,200 June $22.50 calls in one print for $0.20 with shares at $18.94. This was clearly new position, as volume was far above the strike’s open interest of 2,739 contracts. Investitute co-founder Jon Najarian cited the unusual activity on CNBC’s “Halftime Report” today.

Those calls surged to $0.36 after that program, a gain of 80% in less than three hours, with volume soaring to 24,000. The stock rose less than 5% in the same time, showing how quickly options can far outpace moves 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.

DO was up 3.27% to $19.60 today. The offshore driller has rallied sharply since early April along with other energy names as the price of oil has risen to multi-year highs.