$ERI bulls quintuple their money

Eldorado Resorts surged on deal news today, returning huge profits on upside option positions.

On March 29, Investitute’s market scanners identified the purchase of 5,000 June $35 calls for $1.55 with shares at $32.60. This was clearly fresh buying, as open interest in the strike was only 1,421 contracts before that session began.

Those calls traded for $8 today, more than 5 times their purchase price. The stock rose 29% in the same time frame, a huge move but still nowhere near that of its options.

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.

ERI spiked higher by 16.25% today to close at $41.50. The casino operator rallied sharply after announcing this morning that it is buying Tropicana Entertainment for $1.85 billion cash.