$ELAN bulls triple their money

Option traders are milking big gains on bullish positions in Elanco (ELAN) today.

On Sep. 30, our Unusual Activity scanners identified the purchase of 5,700 October $28 calls for $0.60 to $1.45 with shares at $27.04. This was clearly a new position, as open interest in the strike was only 298 contracts before that session began.

Those calls have traded for as much as $4.49 so far today, at least 3 times their purchase prices. The stock rose by as much as 19.82% in the same time period, illustrating how options can far outperform moves in their underlying shares on a relative basis.

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.

ELAN is up 1.00% to $32.39 during late session trade, just shy of its 52-Week high of $32.66. The animal pharmaceutical company’s stock price has risen since yesterday when Sachem Head Capital Management confirmed it held a 5.9% stake in the company.