$AXTA call buyers rack up big gains

Bullish option positions paid exponential returns on Axalta Coating today after two unexpected merger developments last night.

On Sept. 20, Investitute’s market scanners identified the purchase of 2,200 January $30 calls for $1.36 to $1.60 with shares at $29.59. These were clearly new positions, as open interest in the strike was only 428 contracts before that session began.

Today those calls were marked at $6, more than 4 times their original purchase price. The stock rallied 20 percent in the same time period, an impressive move but nowhere near that of its options. Investitute co-founder Jon Najarian cited even more call buying, this time at the December $37 strike, on CNBC’s “Halftime Report” this afternoon.

Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

AXTA jumped 4.81 percent to $35.50 today. The industrial-coating manufacturer initially fell in after-hours trading yesterday on news that it had ended negotiations to merger with Akzo Nobel, but shares rebounded sharply when Reuters reported that Japan’s Nippon Paint had made an all-cash offer to buy Axalta. The company confirmed today that it had received that bid.