Why $OCLR calls rocketed 20-fold

Option traders posted astronomic profits in Oclaro on buyout news today.

On March 6, Investitute’s market scanners identified the purchase of 3,100 March $8 calls for $0.10 to $0.15 with shares at $7.60. These were clearly new positions, as open interest in the strike was only 333 contracts before the trades occurred.

Those calls traded as high as $2.13 today, more than 20 times their original purchase price. The stock rallied 31.4% in the same time frame, a large move but 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.

OCLR spiked higher by 27.52% to $10.01 today. This morning Lumentum offered to acquire the optical-network products company for an estimated $1.7 billion in cash and stock.