$MGM calls spike 4-fold in hour

Bullish option traders rode a spike higher in MGM Resorts to collect large profits intraday.

This morning, Investitute’s market scanners found that 2,300 Weekly $29 calls expiring this Friday were purchased for $0.22 and $0.46 with shares at $29.24. These were clearly new positions, as open interest in the strike was only 617 contracts before the activity appeared.

Those calls shot to $1.05 in less than an hour, more than 4 times their initial purchase price. The stock rose less than 2.5% at the same time, underscoring 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.

MGM jumped to $30.01 today before settling back to close at $29.60, still up 1.51% on the session. The casino operator rallied sharply on speculation that an activist investor might take a stake in the company.