$NVS calls get a dose of profits

Bullish option positions opened in Novartis ahead of earnings paid off big today.

On July 12, Investitute’s tracking systems detected the purchase of 1,500 August $77.50 calls for $2.62 to $2.80 as part of a bullish roll with shares at $78.90. This was clearly a new position, as volume was well above the strike’s open interest of 223 contracts.

Those calls traded for $6.26 today, more than double their purchase prices. The stock rose 5.5% at the same time, showing 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.

NVS was down 0.25% to $83.69 today. The drug maker has climbed steadily since beating quarterly estimates and affirming a bullish outlook on July 18.