Charter calls spike on buyout talk

Bullish option traders quadrupled their money in Charter Communications today amid merger speculation.

On June 29, Investitute’s tracking systems identified the purchase of 3,000 August $350 calls for $10.20 to $10.80 with shares at $338.21. Open interest in the strike was a mere 23 contracts before the trades appeared, showing that they were new positions.

Those calls sold for $43 this morning, an average gain of more than 300 percent. The stock rose 16 percent in the same time, 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.

CHTR jumped 5.85 percent to $391.91 today. The cable operator rallied following weekend news reports that Japan’s Softbank was considering a bid for the company.