Upside option positions in Discover Financial Services (DFS) paid off big today.
On Oct. 25, Market Rebellion’s Unusual Activity Service found that 2,250 Weekly $95 calls, expiring today, were bought for $3.60 to $3.80 as part of a bullish spread with shares at $97.24. This was clearly fresh buying, as open interest in the strike was just 90 contracts before the activity appeared.
Those calls sold for as much as $9.95 today, well over 2 times their purchase prices. The stock rose 7.91% in the same time period, a large move 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.
DFS was up by 2.75% to close the session at $105.64.