$IRBT bulls triple their money

iRobot (IRBT) has rebounded sharply in recent weeks, yielding large profits on upside option positions that expire tomorrow.

On Dec. 9, Market Rebellion’s Unusual Activity Service flagged the purchase of 2,300 December $48.50 calls for $0.60 to $0.70 with shares at $45.94. This was clearly fresh buying, as open interest in the strike was a mere 18 contracts before the activity appeared.

Those calls have traded for as much as $2.15 so far today, more than 3 times their purchase prices. The stock rose 10.17% in the same time frame, underscoring 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.

IRBT jumped to $50.87 this morning but has pulled back to $50.20 in midday trading, off 0.73% on the session. The Roomba vacuum maker hit a 52-week low of $42.51 on Dec. 2 but began recovering the next day when Piper Jaffray gave a positive status report on the company’s holiday sales.