How $PAY calls rocketed 27-fold

Bullish option traders posted astronomic gains today on news that VeriFone Systems was being taken private.

On April 3, Investitute’s tracking systems found that 1,500 April $16 calls were purchased mostly for $0.25 to $0.30 with shares at $15.53. These were clearly new positions, as open interest in the strike was only 431 contracts before the activity appeared.

Those calls traded for as much as $6.91 today, more than 27 times their initial purchase price. The stock surged 46.8% in the same time frame, a huge gain 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.

PAY spiked higher by 51.87% today to close at $22.78. This morning private-equity firm Francisco Partners announced that it was taking the electronic-payment company private in a deal valued at $3.4 billion.