It took only one session for option traders to reap exponential gains in JD.com.
Just last Friday, Investitute’s proprietary programs found that 5,900 Weekly $40 calls that expire on Oct. 6 were purchased for $0.17 to $0.28 with shares at $38.21. This was clearly fresh buying, as volume was well above the strike’s open interest of 1,548 contracts.
Today those calls traded up to $0.70, more than 4 times their original price. The stock rose less than 4.5 percent at the same time, showing how quickly options can far outpace gains in their underlying shares. It was the second winning call trade in the name posted on Investitute this month.
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.
JD was up 2.36 percent today to close at $39.10. The Chinese e-commerce company had pulled back in the last two weeks but rebounded today from a key support level.