Traders doubled their money today on upside option positions in Schlumberger.
On Nov. 17, Investitute’s proprietary systems cited the purchase of 10,000 January $65 calls for $0.92 as part of a bullish spread with shares at $62.02. This was clearly a new position, as open interest in the strike was well above the strike’s open interest of 7,197 contracts. Investitute co-founders Jon and Pete Najarian discussed the unusual activity with TheStreet’s Jim Cramer on CNBC’s “Halftime Report” at that time.
Those calls traded for $2.04 today, more than double their purchase price. The stock rose 4.9 percent in the same time frame, underscoring how options can far outperform their underlying shares. It was the second bullish trade in Schlumberger posted on Investitute in the last month.
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.
SLB was up 2.99 percent to $64.73 today. The oilfield-service provider rallied along with other energy names after OPEC extended production cuts yesterday and as analysts saw the company benefiting from tax changes.
(Disclosure: I am long SLB.)