Infinera call buyers chalk up gains

Infinera has been rebounding for the last month, resulting in significant returns on upside option positions.

On April 27, Investitute’s proprietary programs found that 4,000 June $10 calls were purchased for $1 with shares at $10.14. Open interest in the strike was a mere 15 contracts before the trade occurred, showing that it was a new position.

Today those calls traded for $1.65, a gain of 65 percent. The stock was up less than 14.9 percent in the same time, illustrating the kind of leverage that can be achieved with options. (Investitute co-founder Jon “DRJ” Najarian also noted buying in the August 11 calls earlier this month.)

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.

INFN was up 3.92 percent to close at $11.39 today. The optical-network equipment maker was upgraded this morning to “buy” from “neutral” at MKM Partners, which raised its price target to $14 from $10 for the stock.