$MDCO calls surge 5-fold

Option traders are posting exponential gains on bullish positions in Medicines Company (MDCO) today.

On Sept. 4, Market Rebellion’s Unusual Option Activity Service detected the purchase of 5,000 January $55 calls in one print for $3.80 with shares at $46.35. This was clearly a new position, as open interest in the strike was 4,142 contracts before the trade occurred.

Those calls have changed hands for as much as $19.50 today, more than 5 times their purchase price. The stock soared 56.29% in the same time period, a huge move but still nowhere near that of its options 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.

MDCO is up 18.76% to $69.65 this morning. Shares rallied today on a Bloomberg report that the biopharmaceutical company has been in potential takeover talks with Novartis (NVS).