$MCHP call prices double

Option traders posted big profits in Microchip Technology (MCHP) today.

On Oct. 11, our Unusual Activity Service showed that 2,500 January $95 calls were bought for $6.70 to $6.95 with shares at $95.35. These were clearly new positions, as open interest in the strike was a mere 1,992 contracts before the activity appeared.

Those calls traded as high as $14.10 so far this morning, more than double their original purchase prices. The stock rose 14.32% in the same time frame, 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.

MCHP is up 5.79% to $109.74 currently, a new all-time-high for the shares. The technology manufacturer provided an update on its business environment after the closing bell yesterday where it raised guidance.