Why $CSOD calls are skyrocketing

Cornerstone OnDemand surged on buyout speculation today, handing exponential profits to bullish option traders.

On Aug. 29, Investitute’s tracking systems detected the purchase of 2,250 September $37.50 calls for $0.30 to $0.50 with shares at $34.46. Open interest in the strike was only 257 contracts before the activity appeared, showing that it was fresh buying.

This afternoon those calls traded up to $2.50, more than five times their purchase prices. The stock rose less than 15.8 percent in the same time period, illustrating how options can far outperform 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.

CSOD spiked higher by 14.86 percent to close today at $40.03. The business-software company rallied sharply on reports that it has hired advisors to work on strategic options, leading to speculation about a sale.