$ON call price rise 10x

On Semiconductor (ON) yielded exponential gains on upside option positions today.

On May 26, Market Rebellion’s Unusual Activity Service flagged the purchase of 2,500 June $18 calls for $0.30 to $0.35 as part of a bullish spread, selling an equivalent amount of downside puts at the same time, with shares at $16.31. This was clearly fresh buying, as open interest in the strike was only 662 contracts before the activity appeared.

Those calls traded for as much as $3.50 far today, at least 10 times their purchase prices. The stock rose 31.09% 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 ended the session up 3.27% to $20.82 today. The chip maker announced a shareholder rights plan this morning, designed to protect stockholder interests by reducing the likelihood of a third party gaining control of the company during the recent market volatility.