$MAT calls skyrocket on merger news

Bullish option positions in Mattel spiked to stratospheric levels today on buyout reports.

On Oct. 27, Investitute’s tracking systems detected the purchase of 26,000 November $15.50 calls for $0.05 to $0.15 with shares at $13.53. These were clearly new positions, as open interest in the strike was only 866 contracts before the activity appeared.

Those calls sold for $2.50 this morning, 50 times their original purchase price. The stock surged 32.7 percent in the same time period, a large move but nowhere near that of its options.

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.

MAT surged 20.66 percent to $17.64 today. The Wall Street Journal reported Friday evening that Hasbro approached the rival toy maker in a takeover attempt.