Bullish option traders posted stratospheric gains in Schlumberger today.
On Nov. 11, Investitute’s market scanners identified the purchase of 10,000 January $65 calls for $0.92 as part of a bullish spread with shares at $62.02. Volume was well above the strike’s open interest of 7,197 contracts, indicating that this was a new position. 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 ended today’s session trading for $11 this afternoon, 12 times their purchase price. The stock rose 22.5 percent in the same time period, underscoring how options can far outperform 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.
SLB was up 0.93 percent today to close at $75.60. The oilfield-service company has rebounded as the price of crude is trading at its highest level in more than three years.
(Disclosure: I am long SLB.)