$ROKU calls stream big gains

Bullish option traders have racked up large profits in Roku (ROKU).

On March 6, Investitute’s tracking systems detected the purchase of 9,985 October $55 calls for $23.40 as part of a bullish roll with shares at $72.25. This was clearly a new position, as open interest in the strike was a mere 109 contracts before that session began. Investitute co-founder Jon Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those calls traded for as much as $48.55 today, more than twice their purchase price. The stock surged 40.9% in the same time period, showing how options can far outperform their underlying shares 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.

ROKU was up 8.85% to $101.88 just before today’s closing bell, just off session highs. Guggenheim upgraded the video-streaming company to “buy” from “neutral” and raised its price target to $119 from $75. That followed a move by Needham to bump its price target to $120 from $85 on May 29, based on several competitive factors. The stock rallied sharply after quarterly results on May 8.