Calls spike higher in $STX overnight

It took only one day for bullish traders to draw exponential gains from option positions in Seagate.

Just yesterday, Investitute’s proprietary programs showed that 3,600 Weekly $32.50 calls that expired this afternoon were purchased for $0.22 to $0.49 with shares at $32.67. These were clearly new positions, as open interest in the strike was just 720 contracts before the trades occurred.

Today those calls traded for $1.13 just before the closing bell, more than 5 times their original price. The stock was up less than 3 percent at the same time, exemplifying how quickly options can far outpace gains in 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.

STX rose 2.6 percent to $33.57 today. Earlier this week Japan’s Toshiba agreed to sell its chip business to a consortium that included Seagate, rejecting long-running negotiations with arch-rival Western Digital.