$PBR option bulls strike a gusher

Bullish option positions are yielding big returns in Petrobras (PBR) after an upgrade this morning.

On Apr. 28, Market Rebellion’s Unusual Activity Service found that 6,800 Weekly $9.50 calls, expiring next Friday, Jun. 4, were bought for $0.20 to $0.23 with shares at $8.58. This was clearly fresh buying, as open interest in the strike was just 12 contracts before the activity appeared.

Those calls have traded up to $0.70 today, over 3 times their purchase prices. The stock rose 18.76% in the same period, showing how options can far 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.

PBR was last up by 6.42% to $10.20 today. The Brazilian energy giant was upgraded to Overweight from Neutral at JPMorgan this morning.