Calls soaring with $HAWK deal

Blackhawk Network spiked higher on merger news today, handing enormous gains to bullish option traders.

On Jan. 4, Investitute’s market scanners identified the purchase of 10,000 February $35 calls for $2.10 and $2.15 as part of a bullish spread with shares at $34.10. This was clearly a new position, as open interest in the strike was a mere 24 contracts before the activity appeared. Investitute co-founder Jon Najarian cited the unusual activity on CNBC’s “Halftime Report” that day in in choosing Blackhawk as his final trade.

Those calls ended today’s session marked at $10, more than 4.5 times their original purchase price. The stock rallied 32.1 percent in the same time frame, underscoring 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.

HAWK rocketed 23.42 percent to $45.05 today. The prepaid gift-card service surged this morning after the company announced that it was being taken private in a $3.5 billion deal.