It took less than a week for option traders to cash in exponential profits on upside positions in T-Mobile.
On May 15, Investitute’s tracking systems detected the purchase of 10,000 August $82.50 calls mostly for $1.20 with shares at $73.61. This was clearly a new position, as open interest in the strike was a mere 13 contracts before the trade occurred. Investitute co-founder Pete Najarian cited the unusual activity at that time on CNBC’s “Halftime Report” and updated the position on the program today.
Those calls traded for as much as $4.07 today, more than 3 times their purchase price. The stock rose 9.63% in the same time frame, underscoring how quickly 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.
TMUS jumped 3.87% to $78.29 today. T-Mobile rallied after the head of the Federal Communications Commission said he would support the telecom carrier’s merger with rival Sprint if certain are met, though shares of both companies pulled back slightly this afternoon following a Bloomberg report that the Justice Department may still reject the deal.