Chesapeake Energy bulls hit gusher

Traders turned quick profits on Chesapeake Energy’s earnings and a rebound in oil late this week.

Just yesterday afternoon, Investitute’s tracking systems showed that 10,400 Weekly $5 calls that expired at the end of today’s session were purchased mostly for $0.11 to $0.20 as the stock traded for $5.08. These were clearly new positions, as open interest in the strike was only 2,492 contracts before the activity appeared.

Those calls finished trading today at $0.46, roughly tripling in value only 24 hours later. The shares were up 7.5 percent in that time, underscoring how much options can outperform stock.

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.

CHK rose 6.43 percent to $5.46 today. The oil and natural-gas producer turned in strong quarterly results yesterday morning, but it initially fell along with most other energy names as crude plummeted to multi-month lows. Chesapeake and the rest of the sector bounced with the price of oil today.

(Disclosure: I am long CHK.)