Calls jumping on Tempur Sealy

Bullish option traders scored enormous profits on Tempur Sealy today amid merger speculation.

On June 8, Investitute’s tracking systems detected the purchase of 2,000 July $55 calls for $0.70 to $0.84 with shares at $49.82. These were clearly new positions, as open interest in the strike was just 40 contracts before the session began.

Today those calls traded up to $2.50, more than tripling in value. The stock rose less than 11 percent in the same period, underscoring the kind of leverage that can be achieved through 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.

TPX was up 4.25 percent to $53.03 today. The stock, which has been grinding higher in recent months along with other housing-related names, rallied this morning on speculation that a deal is being discussed in the mattress industry.

(Disclosure: I am long TPX.)