Option traders are racking up big gains on upside option positions opened in BP just after Thanksgiving.
On Nov. 27, Investitute’s proprietary programs noted that 2,800 Weekly $40 calls expiring tomorrow were purchased for $0.53 and $0.54 with shares at $39.58. This was clearly fresh buying, as open interest in the strike was only 272 contracts before that session began.
Those calls traded for $1.94 at the end of today’s session, more than 3.5 times their purchase prices. The stock rose 5.9 percent in the same time period, underscoring how options can far outperform 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.
BP was up 0.36 percent to $41.87 today. The U.K. energy giant has rallied with the rest of the sector as oil trades at its highest levels in 2-1/2 years.