IAC/InterActiveCorp has seen its stock price double in the last year, and option traders are collecting exponential gains along the way.
On Sept. 21, Investitute’s proprietary programs cited the purchase of 2,000 October $120 calls for $1.50 to $1.70 with shares at $115.71. This was clearly fresh buying, as open interest in the strike was only 308 contracts before the activity appeared.
Those calls traded for $4.95 today, more than 3 times their original purchase price. The stock rose less than 7.9 percent in the same time frame, 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.
IAC was up 0.47 percent to $124.72 today. The company, which owns Match.com, HomeAdvisor, and several other media properties, is scheduled to report earnings on Nov. 9 before the market opens.