Option bulls strike a gusher in $XOP

Option traders have hit quite the gusher, more than tripling their money on upside positions in the SPDR S&P Oil & Gas Exploration & Production Fund (XOP).

On Dec. 8, Market Rebellion’s Unusual Activity tracking systems found that 11,566 January $62 calls were bought for $3.05 as part of a complex bullish spread with shares at $59.80. This was clearly fresh buying, as open interest in the strike was only 3,331 contracts before the activity appeared.

Those calls have traded for as much as $10.15 today, better than 3 times their purchase price. The stock rose 20.72% in the same time period, underscoring how options can far outperform 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.

XOP was up 3.42% at $71.71 by the close. The exchange-traded fund has rallied this year as the price of crude topped the $50 per barrel mark for the first time since early last year.