Quick gains in Western Digital calls

Bullish option traders doubled their money in Western Digital overnight.

Just yesterday, Investitute’s proprietary programs identified the purchase of 4,300 July $89 calls for $1.40 to $1.90 with shares at $87.88. This was clearly fresh buying, as open interest in the strike was just 259 contracts before the trades occurred.

Those calls sold for $4.10 this morning, more than doubling in less than 24 hours. The stock rose 4.6 percent at the same time, showing how quickly options can far outperform their underlying shares. (Investitute co-founder Pete Najarian cited Western Digital on CNBC’s “Halftime Report” this afternoon.)

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.

WDC rose 2.76 percent to $91.73 today. The data-storage company won a court decision that granted its employees access to operations at Toshiba, which it is trying to acquire.

Western Digital is scheduled to report earnings before the market opens on July 27. Call buyers reaped significant gains after the company beat estimates in its last results in April.