$APC calls skyrocket 27-fold

Anadarko Petroleum soared on buyout news today, producing stratospheric profits on bullish option positions.

On March 6, Investitute’s tracking systems detected the purchase of 3,600 May $52.50 call for $0.39 to $0.41 with shares at $43.20. This was clearly fresh buying, as open interest in the strike was only 407 contracts before that session began.

Those calls traded up to $11 today, 27 times their purchase prices. The stock surged 45.79% in the same time period, 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.

APC spiked higher by 32.01% to $61.78 today. Chevron announced this morning that it is buying the oil and gas producer for $33 billion in cash and stock.