$SMH bulls quadruple money

Chip makers have rebounded sharply this year, and option traders have racked up large profits in the VanEck Vectors Semiconductor Fund.

On Jan. 14, Investitute’s proprietary programs flagged the purchase of 15,000 March $100 calls for $0.68 as part of a bullish spread with shares at $89.78. This was clearly a new position, as open interest in the strike was only 149 contracts before the activity appeared.

Those calls traded up to $2.60 today, almost 4 times their purchase price. The stock rose 10.39% in the same time period, underscoring how options can far outperform their underlying shares. It is the second winning trade in the name posted on Investitute in as many weeks.

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.

SMH was up 0.56% to $98.85 today. The exchange-traded fund has rallied nearly 20% since its Jan. 3 low of $82.55 and is at a resistance level that goes back to last October.