$ETP calls spike 12-fold overnight

It took less than 24 hours for option traders to reap enormous profits on bullish positions in Energy Transfer Partners

Just yesterday, Investitute’s market scanners identified the purchase of 12,400 August $21 calls for $0.25 to $0.50 with shares at $21.23. This was clearly fresh buying, as volume was far above the strike’s open interest of 6,827 contracts. Investitute co-founder Jon Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those calls traded up to $3.06 this afternoon, more than 12 times their initial purchase price. The stock rose 10.6% at the same time, showing how quickly options can far outpace gains in 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.

ETP spiked higher by 14% today to close at $24.18. The energy-pipeline company announced last night that it was being acquired by its parent, Energy Transfer Equity, ahead of quarterly results scheduled for Aug. 8 after the close.