How calls scored big in $TEVA

Option traders posted large gains in Teva Pharmaceutical on news that Warren Buffett had taken a stake in the company.

On Dec. 14, Investitute’s market scanners identified the purchase of 20,000 March $20 calls in one print for $1.07 as part of a bullish roll with shares at $17.74. This was clearly a new position, as volume was above the strike’s open interest of 17,599 contract.

Those calls traded as high as $2.10 today, doubling their purchase price. The stock rose 21.4% in the same time period, underscoring how options can far outperform moves 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.

TEVA jumped 7.66% to $20.81 today. Shares rallied sharply last night after Berkshire Hathaway disclosed that it had taken a stake in the generic-drug maker.