$NUAN option bulls score

Option traders who opened upside positions in Nuance Communications (NUAN) a month ago are collecting big profits today.

On Mar. 8, Market Rebellion’s Unusual Options Activity service flagged the purchase of 12,000 August $40 calls for $5.25 with shares at $40.11. This was fresh buying as the volume was well over the previous open interest of 267 contracts.

Those calls have traded up to $14.00 today, more than 2.5 times their purchase price. The stock rallied 33.88% in the same time period, a large move but nowhere near that of their 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.

NUAN was last up 15.96% to $52.86 today. Microsoft (MSFT) announced this morning that it would acquire the company for $56 per share.