$SIG bulls ring in fast gains

It has taken just one session for bullish option traders to rack up huge gains in Signet Jewelers (SIG).

Just yesterday, on Jan. 15, Market Rebellion’s Unusual Activity Service flagged the purchase of 5,000 January $21.50 calls expiring tomorrow for $1.05 to $1.40 with shares at $20.80. This was clearly fresh buying, as open interest in the strike was only 1,530 contracts before that session began.

Those calls have so far traded up to $8.00 this morning, at least 5 times their purchase prices. The stock has rallied 41.92% at the same time, a huge move but still 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.

SIG has spiked higher, last up 32.85% at $28.55 today. The heavily shorted jewelry retailer reported that same-store-sales were up 1.6% for the holiday season and raised its Q4 earnings guidance before the opening bell this morning.