$ARNC bulls double their money

Arconic spiked higher on takeover speculation today, yielding substantial profits on upside option positions.

On June 22, Investitute’s tracking systems detected the purchase of 5,250 January $17.50 calls for $1.55 as part of a bullish spread with shares at $17. This was clearly a new position, as open interest in strike was only 589 contracts before that session began.

Those calls traded for $3.20 this morning, more than double their purchase price. The stock rose 15.76% in the same time frame, showing how 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.

ARNC spiked higher by 10.47% today to close at $19.20. Shares rallied after the Wall Street Journal reported this weekend that private-equity firms had expressed interest in acquiring the aluminum producer.