$HPQ calls up 21-fold in hours

Bullish option traders are printing money in HP (HPQ) after today’s deal headlines.

Less than half an hour before yesterday’s closing bell, our proprietary programs found that 2,200 Weekly $18.50 calls expiring this Friday were bought for $0.11 to $0.14 with shares at $18.36. This was clearly fresh buying, as open interest in the strike was a mere 36 contracts before the activity appeared. Market Rebellion co-founder Jon Najarian cited updated that trade on CNBC’s “Halftime Report” today.

Those calls have traded for as much as $2.73 so far today, more than 21 times their average purchase price. The stock rose 15.31% at the same time, showing how quickly 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.

HPQ is up 10.71% to $20.37 in early trading. Shares jumped this morning after the Wall Street Journal reported that Xerox (XRX) is considering an offer to buy the printer company.