Schlumberger rallied sharply as the price of oil reached its highest level in more than two years, handing huge profits to bullish option traders.
Just last Thursday, Investitute’s tracking systems found that 3,000 Weekly $63.50 calls expiring this Friday were purchased for $0.75 with shares at $63.58. This was clearly fresh buying, as open interest in the strike was a mere 63 contracts before that session began.
Those calls traded for $3.85 today, more than 5 times their purchase price. The stock rose less than 6 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.
SLB jumped 5.5 percent to $67.08 today. Schlumberger rose along with other oilfield-services companies as the space caught up with gains in the rest of the energy sector.
(Disclosure: I am long SLB.)