$XLE bulls strike a gusher

The SPDR Energy Fund (XLE) traded higher today along with crude, delivering large profits to short-term bullish option traders.

On Tuesday of this week, Apr. 21, our Unusual Activity Service identified the purchase of 8,000 Weekly $33 calls for $0.56 to $0.93 with shares at $31.63. Volume was well above the strike’s open interest of 4,833 contracts, showing that this was a new position.

Those calls traded for as much as $2.49 today, at a minimum, double their purchase prices. The stock rose 12.24% in the same time frame, showing how quickly options can far outperform moves in their underlying shares on a relative basis.

This winning upside trade follows another winning position posted on Market Rebellion earlier this week, to the downside in puts as bulls and bears both too advantage of the volatility in oil prices.

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.