$GILD calls up 300% on delayed reaction

Gilead Sciences announced a major acquisition yesterday morning, but it took a full 24 hours for the stock–and its options–to rally sharply

On Aug. 21, Investitute’s tracking systems detected the purchase of 4,100 October $72.50 calls for $2.05 to $2.19 with shares at $72.75. This was clearly fresh buying, volume was well above the strike’s open interest of 1,880 contracts.

Those calls sold for $8.85 at the end of today’s trading, representing a profit of more than 300 percent. The stock rose 11.6 percent in the same time frame, illustrating the kind of leverage that can be achieved through 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.

GILD jumped 7.25 percent today to close at $81.23. Yesterday the drug company announced plans to purchase cancer-treatment developer Kite Pharma for $12 billion.