ST Microelectronics calls pay off

ST Microelectronics rallied with other chip makers today, handing enormous gains to bullish traders.

On April 3, Investitute’s market scanners found that 5,982 July $12.50 calls were purchased for $0.55. Shares were going for $15.28 at the time.

Those call traded up to $4.50 today, representing a profit of more than 700 percent. The stock was up just 11.3 percent in the same period, underscoring how far 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.

STM rose 3.48 percent to $16.94 today. The Swiss semiconductor company has ridden the wave of bullishness toward virtual-reality technologies.