$SIG call prices rocket fivefold

It took barely a week for bullish option traders to rack up huge gains in Signet Jewelers.

On May 29, Investitute’s tracking systems detected the purchase of 3,220 June $44 calls for $2 as part of a bullish spread with shares at $41.88. This was clearly a new position, as open interest in the strike was a mere 52 contracts before the trade occurred. Investitute co-founder Jon Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those calls sold for $11 today, 5.5 times their purchase price. The stock rallied 31.4% at the same time, a huge move but still nowhere near 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.

SIG spiked higher by 18.39% to $52.27 today. The heavily shorted jewelry retailer reaffirmed guidance after beating estimates on the top and bottom lines this morning.