$NIO call prices drive higher

Option traders are driving with big gains today on upside positions opened in Chinese electric-car maker NIO (NIO).

On Sep. 18, Market Rebellion’s Unusual Activity Service flagged the purchase of 19,000 October $19 calls as part of a bullish roll for $2.21 to $2.35 with shares at $19.29. This was clearly fresh buying, as open interest in the strike was 7,674 contracts before that session began.

Those calls traded up to $4.30 today, around double their purchase prices. The stock rose 21.25% in the same time, underscoring how quickly options can far outpace gains in their underlying shares 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.

NIO was last up 5.56% at $22.01 after printing a new high of $22.49 earlier. Deutsche Bank yesterday said that the Shanghai-based auto manufacturer may become the next iconic auto brand while keeping a Buy rating on the stock.