Bullish option traders racked up huge gains today on news that Cypress Semiconductor (CY) is being acquired.
On May 3, Investitute’s tracking systems detected the purchase of 3,500 June $18 calls for $0.40 to $0.45 with shares at $17.32. Open interest in the strike was only 1,677 contracts, showing that this was fresh buying.
Those calls traded up to $4.50 today, more than 10 times their purchase prices. The stock rose 28.75% in the same time period, a large move but nowhere near that of its options on a relative basis.
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.
CY spiked higher by 23.85% to $22.07 today. Germany’s Infineon Technologies (IFFNY) announced this morning that it will buy the chip maker for more than $10 billion.