Investors are receiving delayed rewards after SM Energy’s positive quarterly results last week.
Late last Thursday, Investitute’s market scanners found that more than 15,000 June $20 calls were purchased mostly for $1.55 with shares at $19.97. These were clearly new positions, as open interest in the strike was a mere 21 contracts before that session began.
Today those calls traded for $2.45, a gain of 58 percent in less than three sessions. The stock was up less than 8.2 percent in the same period, showing how options can 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.
SM rose 3.16 percent to $21.84 today. The oil and gas producer beat quarterly earnings and revenue estimates last Tuesday afternoon but fell to a 52-week low as the price of crude cratered. Shares have since bounced along with oil and other energy names.