$PENN wager pays off for bulls

Penn National Gaming dealt option traders a winning hand today.

On Nov. 29, Investitute’s market scanners identified the purchase of 4,800 January $30 calls for $0.75 with shares at $28.42. These were clearly new positions, as open interest in the strike was a mere 206 contracts before the activity appeared.

Those calls traded up to $1.45 this morning, just shy of doubling their purchase price. The stock rose 7.8 percent in the same time frame, illustrating the kind of leverage that can be achieved through options.

Long calls lock in the price where a 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.

PENN initially jumped to $29.77 at the open but then pulled back to close at $29.08, off 2.22 percent on the day. The casino operator announced this morning that it plans to buy rival Pinnacle Entertainment for $1.9 billion.