$NIO calls score quick profits

Option traders made exponential gains today on upside positions opened in Chinese electric-car maker NIO (NIO) today after it reported earnings.

Just this morning, Market Rebellion’s Unusual Activity Service flagged the purchase of 20,000 Weekly $3.50 calls expiring on Jan. 3 for $0.07 to $0.18 with shares at $3.04. This was clearly fresh buying, as open interest in the strike was only 3,065 contracts before that session began.

Those calls have traded up to $1.40 so far today, at least 7 times their purchase prices. The stock rose 58.55% in the same time, underscoring how quickly options can far outpace gains in their underlying shares on a relative basis.

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.

NIO was last up 67.77% to $4.06. The Shanghai-based auto manufacturer beat analyst expectations and raised guidance in its quarterly earnings report this morning.