Calls surge in China’s YY before earnings

Chinese Internet company YY reports quarterly results later this week, but bullish option traders aren’t waiting before buying.

On July 12, Investitute’s market scanners found that 4,400 August $60 calls were purchased for $2.37 to $3.50 with shares at $59.65. Open interest in the strike was only 883 contracts before the trades occurred, showing that they were new positions.

Those calls traded up to $17.50 today, an average gain just shy of 500 percent. The stock surged 29.7 percent in the same period, a big move but still nowhere near that of the options. It was the second winning trade in YY calls in less than a month.

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.

YY rose 4.2 percent today to close at $76.58, ahead of its quarterly report scheduled for Thursday morning. The social-media platform company rallied along with other Chinese Internet stocks after e-commerce giant Alibaba and Marriott International announced a partnership this morning.