$TRIP call buyers pack up major profits

TripAdvisor bounced sharply with encouraging words from analysts today, and bullish option positions responded in kind.

On July 10, Investitute’s market scanners cited the purchase of 3,000 August $37 calls for $2.20 and $2.25 as part of a bullish spread with shares at $36.23. This was clearly a new position, as open interest in the strike was only 627 contracts before the trade occurred.

Those calls traded for $4.60 today, more than doubling in value. The stock rose 14.8 percent in the same time frame, underscoring how options can far outpace their underlying shares in performance.

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.

TRIP rose 6.22 percent to $42.18 today, the biggest gainer in the S&P 500. The travel-reviews site fell yesterday despite beating earnings expectations, but shares rebounded today after two analysts from Barclays said the company may finally be turning the corner.