Traders post big profits on $TWTR

Twitter rallied after a surprisingly strong earnings report, resulting in exponential gains for bullish option positions.

On Tuesday, Investitute’s tracking systems detected the purchase of 5,000 November $17.50 calls for $0.84 to $0.88 as part of a bullish spread with shares at $17.28. These were clearly fresh buying, as open interest in the strike was a mere 65 contracts before the activity appeared.

Those calls traded up to $3.18 today, nearly 4 times their original purchase price. The stock rose 19 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.

TWTR soared 18.49 percent today to close at $20.31. The social-media company beat quarterly estimates on the top and bottom lines before the market opened this morning.