$DYN calls soar on takeover news

A large bullish option position in Dynegy tripled in value today after a report that it was an acquisition target.

On Monday, Investitute’s tracking systems detected the purchase of 10,000 December $10 calls for $0.50 to $0.55 with shares at $8.92. This was clearly a new position, as open interest in the strike was only 2,095 contracts before that session began.

Those calls traded for $1.50 late today, 3 times their original purchase price. The stock was up 25.1 percent in the same time frame, an impressive gain but nowhere near that of its options. It was the fourth instance of heavy buying in December 10 and 11 calls since Sept. 15.

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.

DYN surged 17.05 percent to $10.78 today. The power wholesaler spiked higher about an hour before the closing bell when the Wall Street Journal reported that the company was close to being taken over by Vistra Energy.