Bulls cash in on Western Digital

Western Digital has been rallying all week, and upside option positions are posting exponential profits.

On Monday, Investitute’s tracking systems detected the purchase of 4,300 July $89 calls for $1.40 to $1.90 with shares at $87.88. Open interest in the strike was just 259 contracts before the trades appeared, showing that this was new positioning.

Those calls sold for $6.10 today, representing an average gain of 270 percent in less than a week. The stock rose less than 7.5 percent in that time, underscoring how quickly options can far outperform their underlying shares. Investitute co-founder Jon Najarian cited even more call buying today, this time in the July $96 calls, on CNBC’s “Halftime Report.”

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.

WDC was up 1.77 percent to $94.44 today. The data-storage company has risen sharply since winning a court ruling on Monday that allowed it access to operations at Toshiba, which it is bidding to buy. Western Digital is scheduled to announce quarterly results on July 27 after the market closes.