Calls take wing with $SFLY

Option traders snapped up profits in Shutterfly (SFLY) today.

Last month Investitute’s tracking systems detected unusual option activity in the name twice in one week:

–On May 21, 5,000 July $47.50 were purchased for $3.65 above open interest of 2,616 contracts as part of a bullish spread with shares at $48.77.
–On May 23, 2,000 July $47.50 calls were bought for $3.85, also as part of a bullish spread, with shares at $48.33.

Those calls traded for as much as $6.22 this afternoon, up more than 70% from their initial purchase price. The stock rose 8.24% in the same time period, illustrating the kind of leverage that can be achieved with options.

Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

SFLY ended the regular session up 2.66% to $50.25 today. The digital-photo service confirmed in the post-market that it will be purchased by Apollo Global Management (APO) for $51 in cash, or $2.7 billion, and combined with Snapfish.