Bullish traders drill for profits in $RIG

Transocean is trying to make a comeback, and upside option traders are already making strong profits along the way.

Last Friday, Investitute’s market scanners identified the purchase of 7,000 September $7.50 calls for $0.31 to $0.36 with shares at $7.50. Open interest in the strike was a mere 44 contracts before the trades occurred, showing that they were new positions.

Today those calls sold for $0.61, nearly doubling in value in a week. The stock rose less than 5.9 percent at the same time, illustrating how 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.

RIG was up 3.51 percent to $7.97 today. Yesterday RBC Capital upgraded the offshore driller to “sector perfrom” from “underperform” with an $11 price target.