Praxair yielded enormous returns on upside option positions that expired today.
On March 14, Investitute’s scanners identified the purchase of 7,500 June 125 calls for $155 as part of a bullish vertical spread with shares at $116.56. This was clearly a new position, as open interest in the strike was 2,497 contracts.
Today those calls traded for $10.40, a gain of 570 percent. The stock rose only 16 percent in the same time period, underscoring how options can far outperform 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.
PX rose 0.85 percent today to close at $136. The industrial-gas producer had been trapped in an extremely tight range before breaking out in mid-April, then got a further boost after quarterly results and its $35 billion merger agreement with Germany’s Linde.