Cheap bullish bets placed on Twitter this morning turned exponential profits before lunchtime was over.
About 40 minutes after today’s opening bell, Investitute’s market scanners found that 8,400 Weekly $18.50 calls that expire tomorrow afternoon were purchased for $0.04 to $0.15 with shares at $18.16. Volume was nearly double the strike’s open interest of 4,442 contracts, indicating that this was fresh buying.
Those calls traded up to $0.30 by 12:30 p.m. ET, more than 7 times their original purchase price. The stock rose just 2.7 percent at the same time, showing how quickly options can far outpace gains in their underlying shares.
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.
TWTR jumped 4.06 percent to $18.45 today. The move follows a sharp bounce in another beaten-down social-media stock, Snap, suggesting that traders may be looking for these names to play catch-up with the rest of the tech sector. Twitter is scheduled to report earnings on Oct. 26.