$ON bulls double their money

On Semiconductor yielded exponential gains on upside option positions today.

On Jan. 24, Investitute’s tracking systems detected the purchase of 7,400 March $20 calls for $0.86 to $0.95 with shares at $18.97. This was clearly fresh buying, as open interest in the strike was a mere 11 contracts before the trades occurred. Investitute co-founder Pete Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those calls traded for $2.14 just before the closing bell, 2.5 times their initial purchase price. The stock rose 14% in the same time frame, showing how quickly options can far outpace gains in 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.

ON was up 3.8% to $21.59 today. The chip maker topped earnings expectations before the market opened this morning.