$IQ keeps paying off for bulls

Option traders have turned large profits on upside positions in Chinese technology company iQIYI for the second time in recent weeks.

On Jan. 4, Investitute’s tracking systems detected the purchase of 5,000 February $17.50 calls for $0.89 to $0.93 with shares at $16.01. This was clearly fresh buying, as open interest in the strike was only 376 contracts before the activity appeared. Investitute co-founder Pete Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those calls traded for as much as $2.41 today, more than 2.5 times their purchase prices. The stock rose 22.04% in the same time frame, underscoring how options can far outpace gains in their underlying shares. It was the second winning trade in the name posted on Investitute this month.

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.

IQ fell 2.46% to $19.46 today but is up sharply from its low of $14.35 on the first session of 2019. The Beijing-based online-video service has risen with other Chinese names as trade talks continue.