Option traders are racking up huge returns from upside positions in Chinese Internet company YY.
Back on May 10, Investitute’s market scanners identified the purchase of 2,300 August $55 calls for $2.43 to $3.30 with shares at $51.95. Volume was more than double the strike’s open interest of 1,116 contracts, indicating that these were new positions.
Those calls traded up to $9.80 today, representing an average profit of more than 240 percent. The stock rose 23 percent in the same period, a significant gain but one that paled in comparison to that of the options.
Long calls lock in the price where the stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.
YY surged 9.1 percent today to close at $63.79. The social-media platform company has been listed as one of the most popular Chinese stocks among major-stock picks among leading mutual funds, not far behind e-commerce giant Alibaba.