$HUM calls buyers turn quick profits

It took less than a week for option traders to see substantial gains in Humana

On Monday, Investitute’s tracking systems detected the purchase of 3,200 January $250 calls for $5.60 with shares at $243.73. Volume was more than double the strike’s open interest, showing that this was fresh buying. Investitute co-founder Pete Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those calls ended today trading for $15.63, almost tripling in price, as Najarian pointed out in an update on the trade this afternoon. The stock rose 7 percent at the same time, illustrating the kind of leverage that can be achieved through options.

Long calls lock in the price where a 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.

HUM surged 4.29 percent to $260.86 today. The health-care provider has been on a short list of potential takeover targets circulated on Wall Street recently.