Call prices soar 6-fold in $LLY

It has taken less than two weeks for bullish option traders to score huge profits in Eli Lilly (LLY).

On Dec. 6, Market Rebellion’s Unusual Activity Service identified the purchase of 2,000 December $123 calls for $0.90 as part of a bullish roll with shares at $120.50. Open interest in the strike was a mere 48 contracts before the trade occurred, showing that this was a new position.

Those calls have traded for as much as $6 so far today, more than 6.5 times their purchase price. The stock rose 7.05% in the same time frame, underscoring how quickly options can far outperform 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.

LLY is up 3.19% to $129.33 this afternoon. Morgan Stanley upgraded the drug maker to “overweight” from “equal weight” and raised its price target to $150 from $116 this morning, following the company’s strong outlook for 2020 issued yesterday.