$IBM call prices double overnight

Option traders collected profits today on bullish positions opened in IBM only one session earlier.

Just yesterday, Investitute’s market scanners found that 3,000 Weekly $122 calls expiring on Nov. 23 were purchased for $1.35 to $1.40 with shares at $120.22. This was clearly fresh buying, as open interest in the strike was a mere 56 contracts before the trades occurred.

Those calls sold for $2.74 today, twice their purchase prices. The stock rose 2.86% at the same time, showing how quickly options can far outpace gains 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.

IBM was up 2.55% to close at $123.12 this afternoon. The computing icon rebounded off multi-year lows last week and continued higher this morning on news that CEO Ginni Rometty bought $3 million in company stock.

(Disclosure: I am long IBM.)