$MXIM bulls make fast profits

Upside option positions have posted huge gains in chip maker Maxim Integrated Products (MXIM) today.

Market Rebellion’s Unusual Option Activity Service flagged bullish option activity in the name on two consecutive sessions last week:

–On Jul. 8, 7,600 $65 calls were purchased for $0.40 to $0.65 above open interest of 2,044 contracts with shares at $61.87.
–On Jul. 9, 7,000 more $65 calls were purchased for $1.10 to $1.40 below open interest of 9,811 contracts, adding to the previous day’s volume, with shares at $63.82.

Those calls today traded up to $8.32, as much as 20 times their original purchase prices. The stock rose 17.7% in the same time period, illustrating the kind of leverage that can be achieved quickly with 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.

MXIM jumped 8.11% to $69.29 today. The circuit manufacturer spiked higher today after Analog Devices (ADI) announced it would be its acquirer in an all-stock transaction.