$IP call buyers print huge profits

Option traders posted enormous gains in International Paper today amid buyout speculation.

On Dec. 28, Investitute’s market scanners identified the purchase of 1,875 February $62.50 calls for $0.21 as part of a bullish roll. Open interest in the strike was only 53 contracts before the trade occurred, showing that it was a new position.

Those calls traded for $1.90 this afternoon, 9 times their purchase price. The stock rose 9.2 percent in the same time period, showing how options can far outperform their underlying shares.

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.

IP was up 1.84 percent today to close at $62.62 after reaching a 52-week high of $62.82 earlier in the session. The paper and packaging producer, which is scheduled to report earnings on Feb. 1 before the market opens, was the subject of takeover rumors this morning.