$SM bulls double their money

Option traders racked up substantial gains in SM Energy today, just two weeks after opening upside positions in the name.

On April 11, Investitue’s proprietary programs flagged the purchase of 3,000 May $22.50 calls for $0.70 as part of a bullish spread with shares at $19.79. Volume was well above the strike’s open interest of 1,019 contracts, showing that this was a new position.

Those calls sold for $1.85 just before the closing bell today, more than 2.5 times their purchase price. The stock rallied 17.2% in the same time frame, underscoring 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.

SM was up 1.97% today to close at $23.28. The oil and natural-gas producer has risen with other energy names as the price of crude has rallied.