$RXT bulls rack up fast profits

Bullish option traders are racking up fast profits on upside positions opened in Rackspace (RXT) today on positive new of a potential investment from Amazon.com (AMZN).

On Aug. 13, Market Rebellion’s Unusual Activity scanners identified the purchase of 5,000 September $15 calls in two prints for $1.85 and $2.25 with shares at $16.07. These were clearly new positions, as there was zero open interest in the strike before the activity appeared.

Those calls traded up to $5.40 today, more than double their purchase prices. The stock rose 18.11% in the same time frame, illustrating the kind of leverage that can be achieved through options.

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.

RXT was last up on the day at $18.24, 9.86% higher after news that Amazon was in preliminary talks with the cloud computing company to invest in its services.