Traders opened upside option positions in Sohu.com at the end of last week, and they are already reaping large profits.
On Friday, Investitute’s proprietary programs cited the purchase of 2,000 November $65 calls for $3.50 to $4.60 with shares at $65.32. These were clearly new positions, as open interest in the strike was a mere 10 contracts before that session began.
Those calls traded up to $7.60 today, more than double their original purchase price. The stock rose 7.4 percent at the same time, illustrating the kind of leverage that can be achieved through options.
Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.
SOHU jumped 8.62 percent to $70.06 today. The Beijing-based online media company gapped higher last Thursday after filing papers for a U.S. initial public offering by its subsidiary Sogou.com, China’s No. 3 search engine. Sohu.com is scheduled to report earnings before the market opens on Oct. 27.