Calls drill for a gusher in Jones Energy

Traders are placing cheap bets that Jones Energy will reverse a steep slide since the beginning of the year.

More than 10,500 May $2.50 calls were purchased for $0.15 about halfway through today’s trading, according to Investitute’s proprietary scanners. Open interest in the strike was a mere 25 contracts before the session began, showing that this is fresh buying.

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.

JONE fell 4.76 percent today to close at $2 even. The oil and gas producer, which started 2017 trading well above $4.50, hit a 52-week low of $1.91 early in the morning.

The company is scheduled to report earnings after the market closes on May 3. Today’s call buyers are looking for the stock to rise above $2.65 by expiration on May 19.