Calls surge threefold in $CAH

Option traders who opened bullish positions in Cardinal Health (CAH) at the end of last year are reaping huge returns today.

Back on Dec. 30, Market Rebellion’s Unusual Option Activity Service found that 3,000 Weekly $50 calls expiring tomorrow were bought for $2.50 to $2.80 with shares at $51.01. This was clearly fresh buying, as open interest in the strike was a mere 1 contract before the activity appeared.

Those calls traded for as much as $9.70 today, about 3.5 times their average purchase price. The stock rose 17.15% in the same time period, showing 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.

CAH was last up 10.73% to $58.33 in afternoon trade. The health-care company surpassed quarterly expectations and raised its outlook before the market opened this morning.