Calls double overnight in $SQ

Option traders cornered large profits in Square today, only one session after opening bullish positions in the name.

Just yesterday, Investitute’s tracking systems found that 3,000 Weekly $70 calls expiring on Jan. 25 were purchased for $1 to $1.44 with shares at $68.56. Volume was well above the strike’s previous open interest of 2,308 contracts, indicating that this was fresh buying. Investitute co-founder Pete Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those calls traded up to $3 today, about 2.5 times their average purchase price. The stock rose 5.08% at the same time, showing how quickly options can far outpace gains in their underlying shares.

It was the second winning trade in SQ posted in a little more than a week, after Investitute co-founder Jon Najarian cited buying in the January $63 calls on CNBC Jan. 8. Those contracts traded up to $9.10 before expiring today, more than 3 times their initial purchase price.

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.

SQ was up 4.94% to $72.24 today. Shares of the electronic-payment service initially pulled back Wednesday after rival Fiserv (FISV) announced its $22 billion acquisition of First Data (FDC), but KeyBanc said yesterday that Square would not be threatened by the merger.