$MRK bulls get a dose of gains

Option traders have already quadrupled their money on upside positions in Merck (MRK) opened last week.

On Mar. 25, Market Rebellion’s Unusual Activity Service detected the purchase of 2,000 Weekly $76 calls, expiring this Thursday, Apr. 1, for $0.64 as part of a bullish spread with shares at $75.65. This was clearly fresh buying, as open interest in the contract before that session began was only 334 contracts.

Those calls traded for $2.60 today, over four times their purchase price. The stock rose 3.75% in the same time frame, underscoring how quickly options can dwarf gains in their underlying shares 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.

MRK was up 1.14% to $78.30 today. The pharmaceutical giant is scheduled to report earnings on Apr. 29.