Bulls rack up fivefold gains in $OSTK

Overstock.com reached its highest level in more than a decade today, handing huge profits to upside option traders.

On Oct. 24, Investitute’s proprietary programs cited the purchase of 3,600 December $40 calls for $3.20 to $5.60 with shares at $38.90. This is clearly fresh buying, as volume was well above the strike’s open interest of 1,917 contracts.

Those calls traded for $17.50 today, more than 5 times their original purchase price. The stock soared 44.9 percent in the same time period, a huge move but still one that pales in comparison to that of its options 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.

OSTK jumped 5.93 percent today to close at $56.30, minutes after hitting a 12-year high of $56.95. The online discount retailer, which had already rallied sharply after quarterly results last week, surged again today on speculation that the company would sell its home e-commerce business.