Upside option traders posted big gains today thanks to strong quarterly results from Nuance Communications.
On Oct. 26, Investitute’s tracking systems detected the purchase of 4,500 January $16 calls in one print for $0.50 with shares at $14.78. This was clearly a new position, as open interest in the strike was only 769 contracts before the trade occurred. Investitute co-founder Pete Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”
Those calls traded up to $1.95 this morning, 4 times their purchase price. The stock rose 19.6 percent in the same time period, an impressive gain 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.
NUAN rose 3.22 percent to close at $16.37 today after spiking to $17.72 in early trading. The voice-recognition software maker beat expectations on the top and bottom lines after the market closed yesterday.