$MRK bulls triple their money

Option traders scored major gains in Merck today thanks to strong quarterly results reported at the end of last week.

On July 10, Investitute’s tracking systems detected the purchase of 10,000 August $65 calls for $0.55 to $0.64 with shares at $62.51. Volume was above the strike’s open interest of 9,026 contracts, indicating that this was fresh buying. Investitute co-founder Jon Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those calls traded up to $1.60 today, nearly 3 times their initial purchase price. The stock rose 5.76% in the same time period, a large move 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.

MRK rose 1.64% to $65.87 today. The drug maker beat earnings and revenue estimates before the market opened on Friday, July 27.