$DXJ call prices double overnight

Option traders turned quick gains today in the Wisdom Tree Japan Hedged Equity Fund.

Just yesterday, Investitute’s proprietary programs cited the purchase of 8,750 February $60 calls for $1.18 as part of a bullish spread with shares at $1.30. This was clearly a new position, as volume was double the strike’s open interest of 4,400.

Those calls traded for $2.18 this morning, almost doubling in price less than 24 hours later. The stock rose 2.2% at the same time, showing 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.

DXJ was up 1.41 percent today to close at $61.27. The exchange-traded fund, which tracks large-cap Japanese stocks while adjusting for currency fluctuations, rallied after the Nikkei index reached its highest level in 26 years last night.