Snap spiked higher on a Barclays upgrade this morning, providing exponential returns on upside option positions.
Last Wednesday, Investitute’s market scanners showed that 3,900 Weekly $14.50 calls expiring on Dec. 22 were purchased $0.23 as part of a bullish spread with shares at $13.03. This was clearly a new position, as volume was well above the strike’s open interest of 2,245 contracts.
Those calls traded up to $0.97 today, more than 4 times their purchase price. The stock rose 15.2 percent in the same time frame, 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.
SNAP jumped 10.1 percent to $14.94 today. The heavily shorted stock squeezed higher after Barclays raised the social-network name to “overweight” from “equal weight” and lifted its price target to $18 from $11.