$BKS bulls triple their money

Option traders have racked up exponential profits on upside positions opened in Barnes & Noble just before its merger news came out.

Late in the afternoon on June 5, Investitute’s tracking systems detected the purchase of 6,400 July $4 calls for $0.70 to $0.85 with shares at $4.50. This was clearly fresh buying, as above open interest in the strike was a mere 45 contracts before that session began.

Those calls traded fro as much as $2.65 today, more than 3 times their purchase prices. The stock surged 47.33% in the same time frame, 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.

BKS jumped to $6.65 in afternoon trading, up 11.58% on today’s session. The book chain rallied on reports that Elliott Management is buying the company for $683 million.