Bulls score big gains in $MRK

Merck has been rallying for several weeks, yielding major returns on upside option positions.

On June 12, Investitute’s market scanners identified the purchase of 4,300 August $62.50 calls for $1.75 to $1.88 with shares at $62.23. These were clearly new positions, as open interest in the strike was only 1,610 contracts before the trades occurred.

Those calls sold for $6.65 today, more than 3.5 times their purchase prices. The stock rose 11.12% in the same time period, underscoring how 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.

MRK was up 0.31% to $69.06 today. The drug maker has been climbing since reporting strong quarterly results on July 27.