Calls turn quick profits as $PBYI surges

Puma Biotechnology rallied sharply as merger fever hit the pharmaceutical space today, leading to big gains for bullish option traders.

On Friday, proprietary programs cited the purchase of 3,000 September $85 calls for $4.20 as part of a bullish spread with shares at $81.45. Open interest in the strike was a mere 64 contracts before the trade occurred, showing that it was a new position.

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.

Today those calls traded as high as $10.70, more than doubling in value just three sessions later. The stock rose 13.9 percent at the same time, underscoring the type of leverage that can be obtained with options.

PBYI jumped 10.57 percent to $94.15 today. Puma was one of many companies that rallied on takeover speculation after Gilead’s announced plans to acquire Kite Pharma for $12 billion this morning.