Calls post large gains with $STM at highs

STMicroelectronics has been running hard for months, handing big profits to bullish option traders.

On June 29, Investitute’s tracking systems detected the purchase of 6,950 October $17.50 calls for $0.35 as part of a bullish roll with shares at $14.23. This was clearly a new position, as volume was above the strike’s open interest.

Today those calls traded to $1.94, more than five times their original price. The stock rallied 35 percent in the same time period, a large gain but nowhere near 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.

STM was up 0.95 percent to close at $19.19 today after hitting a 52-week high of $19.25 in late trading. The Swiss semiconductor maker has been rallying sharply along with other companies involved in virtual-reality technologies.