Patient bulls hit jackpot in $PENN

Option traders opened upside positions in Penn National Gaming fives months ago, and today they are collecting huge winnings.

Way back on May 5, Investitute’s proprietary programs found that 9,800 October $22 calls were purchased for $0.50 and $0.55 with shares at $18.60. These were clearly new positions, as open interest in the strike was a mere 10 contracts before the activity appeared.

Those calls traded as high as $1.85 today, more than triple their purchase prices. The stock rallied 32.6 percent in the same time period, a large move but one that still pales in comparison to 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.

PENN jumped 4.98 percent to $24.05 today. The casino and race-track operator surged along with rival Pinnacle Entertainment this afternoon after the Wall Street Journal reported that the companies have been holding “on again, off again” merger negotiations.