$XRX bulls triple their money

Option traders posted big gains on upside positions in Xerox today.

Back on Dec. 13, Investitute’s market scanners identified the purchase of 20,000 18April 29 calls for $0.70 and $0.71 as part of a bullish spread with shares at $24.65. This was clearly fresh buying, as open interest in the strike was a mere 35 contracts before the activity appeared.

Those 18April 29 calls traded for $2.40 today, more than 3 times their purchase prices. The stock rallied 25.92% in the same time period, a large move but 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.

XRX opened higher this morning but pulled back with the rest of the market to close at $30.85, down 0.77% on the session. The stock has traded up strongly with the rest of the market after those calls were bought, bolstered by an earnings report, and recently almost made a new one-year high, as the outlook for the economy and business growth has improved.