Energy bulls double their money in $XOP

Option traders have more than doubled their money on upside positions in the SPDR S&P Oil & Gas Exploration & Production Fund (XOP).

On Oct. 9, Market Rebellion’s tracking systems showed that 4,000 December $21 calls were bought in two prints for $1.32 to $1.35 with shares at $20.57. This was clearly a new position, as open interest in the strike was a mere 863 contracts before the trade occurred.

Those calls have traded for as much as $2.93 today, more than 2 times their purchase price. The stock rose 14.68% in the same time period, underscoring how options can far outperform their underlying shares 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.

XOP traded up to $23.61 earlier in the session but has pulled back, currently up 0.39% at $23.00. The exchange-traded fund has rallied off its October lows as some of its components, such as Murphy Oil (MUR), report earnings.