Calls turn quick gains in $TEVA

It took less than three sessions for traders to collect big profits on bullish options in Teva Pharmaceutical.

On Tuesday, Investitute’s market scanners identified the purchase of 4,000 December $14 calls for $0.30 to $0.35 with shares at $13.30. These were clearly new positions, as open interest in the strike was only 756 contracts before the activity appeared.

Those calls traded up to $0.70 this morning, more than double their original purchase price. The stock rose less than 6.5 percent at the same time, showing how quickly options can far outpace gains in their underlying shares. It was the second winning trade in Teva posted on Investitute in as many weeks.

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.

TEVA jumped to $14.28 early this morning before settling back to close at $13.70, up 1.63 percent on the session. Shares spiked higher in pre-market trading after reports that the generic-drug maker is expected to lay off 4,000 employees.