ServiceNow has rebounded sharply, yielding significant gains on upside option positions opened earlier this week.
On Monday, Investitute’s market scanners identified the purchase of 5,117 December $123 calls in one print for $1.50 with shares at $122.29. This was clearly a new position, as open interest in the strike was a mere 50 contracts before the trade occurred.
Those calls ended today at $3.16, more than doubling their purchase price in four sessions. The stock rose 3.1 percent 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.
NOW was up 2.27 percent to $126.17 today. On Monday Cowen raised its price target on the cloud-software company to $160 from $132 and named it a “best idea for 2018.”