$MDT calls turn quick gains

It took barely a week for bullish option traders to double their money in Medtronic (MDT).

On Sept. 10, Market Rebellion’s proprietary programs found that 6,500 Weekly $110 calls expiring on Sept. 27 were bought for $0.56 to $0.68 with shares at $106.66. This was clearly fresh buying as volume was well above the strike’s previous open interest of 4,702 contracts.

Those calls sold for $1.09 today, about twice their initial purchase price. The stock rose 2.12% in the same time frame, illustrating the kind of leverage that can be achieved quickly with options.

Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

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.

MDT reached a session high of $109.66 but has pulled back with the broader market to $109.28 this morning, off 0.05% on the day. The medical-device maker has rallied sharply since holding support at the end of August.