$JD calls prices surge 8-fold

A new stake from Google propelled shares of JD.com today, handing huge profits to upside option traders.

On May 23, Investitute’s market scanners identified the purchase of 10,000 July $40 calls for $0.65 to $0.68 with shares at $36.86. Volume was well above the strike’s open interest of 6,894 contracts, indicating that this was fresh buying.

Those calls traded for $5.65 this morning, more than 8 times their initial purchase price. The stock rose 22.5% in the same time period, showing how 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.

JD spiked to $45.23 this morning but settled back to close at $43.76, up 0.39% on the session. Shares rallied after Google announced a $550 million investment in the Chinese e-commerce company.