$PAGS bulls five-fold their money

Upside calls bought in PagSeguro Digital (PAGS) last month are paying off for option traders today

On May 14, Market Rebellion’s Unusual Activity Service found that 4,000 August $42.50 calls were bought for $2.60 to $2.80 with shares at $39.20. This was clearly fresh buying as open interest in the strike before the activity appeared was only 522.

Those calls traded for as much as $14.47 today, at least 5 times their purchase prices. The stock rose 44.72% in the same time frame, a large move but nothing like that of its options on a relative basis.

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.

PAGS was up 2.19% to $56.36 at the close of trade today. Deutsche Bank noted this morning that the company’s growth prospects are being undervalued.