Atwood calls flooded with profits

Option traders tripled their money in Atwood Oceanics today on news that the company is being acquired.

On May 3, Investitute’s tracking systems detected the purchase of 2,100 June $7 calls for $0.95 to $1.05 with shares at $7.53. These were clearly new positions, as open interest in the strike was only 130 contracts before the trades occurred.

Those calls went for $3.40 today, more than tripling in value. The stock has gained 38.2 percent in the same period, a large move but still one that pales in comparison to that of the options.

Long calls lock in the price where the 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.

ATW spiked 24.26 percent today, closing at $10.04. The offshore oil and gas producer soared with the announcement this morning that rival driller Ensco planned to purchase the company for $10.72 per share. Atwood surpassed quarterly estimates on the top and bottom lines May 8.