Why calls surged 10-fold in $SQ

Square’s long rally has led to geometric gains in option positions opened last summer.

Way back on June 7, Investitute’s tracking systems detected the purchase of 10,100 January $30 calls for $1.30 to $1.45 with shares at $23.93. These were clearly new positions, as open interest in the strike was only 563 contracts before the trade occurred.

Those calls sold for $12.60 at the end of yesterday’s session, nearly 10 times their original purchase price. The stock rocketed 78.2 percent in the same seven-month period, a huge move, but even that gain paled in comparison to that of its options. Investitute co-founder Jon Najarian told CNBC about repeated bullish option activity in Square recently.

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.

SQ jumped 5.69 percent to $42.56 yesterday. Analysts are bullish on the electronic-payment service’s potential for 2018, and Nomura Instinet has given Square a $64 price target.