$IBM calls soar in one-day trade

Option traders who opened bullish positions in IBM this morning were collecting big profits by the afternoon.

Less than half an hour after the opening bell, Investitute’s proprietary programs found that 4,800 Weekly $145 calls expiring today were purchased for $0.09 to $1.17 with shares at $145.48. This was clearly fresh buying, as open interest in the strike was only 953 contracts before the activity appeared.

Those calls ended the session trading for $2.79, more than 4 times their average purchase price. The stock rose 14.85% 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 popped 3.32% today to close at $147.70. The computing icon rallied amid rumors that it was the target of an activist investor.

(Disclosure: I am long IBM.)