Calls hit jackpot in Penn National

Bullish bets placed back in February have paid off handsomely in Penn National Gaming.

On Feb. 24, Investitute’s tracking systems detected the purchase of 2,500 July 14 calls in one print for $1.38 with the stock at $14.28. There was no open interest in the strike before the trade occurred, showing that it was a new position.

Today those calls were marked at $4.80, with a bid/ask spread of $4.50/$5.10, about 2.5 times their original purchase price. Shares gained 31 percent in that time frame, an impressive move, but it still paled in contrast to the surge in the calls.

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.

PENN fell 1.37 percent today to close at $18.68. The regional casino operator surged after raising guidance on March 23 and has been range-bound mostly between $18 and $19 for the last six weeks.