$CNC calls surge on deal talk

Bullish option traders nearly doubled their money in Centene after merger developments today.

On April 15, Investitute’s proprietary programs found that 3,500 May $52.50 calls were bought for $2.90 as part of a bullish spread with shares at $53.07. This was clearly a new position, as volume was well above the strike’s existing open interest of 2,421 contracts.

Those calls traded for as much as $5.40 heading into today’s closing bell, almost twice their purchase price. The stock rose 7.41% in the same time frame, 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.

CNC jumped 6.56% to $56.04 today. The stock rallied after reports that hedge funds Corvex Management and Sachem Head Capital Management are considering a challenge to the health insurer’s $17.3 billion bid for Wellcare Health Plans and suggested that Centene could instead be purchased by Humana.