Pinnacle Foods has already provided huge returns on upside positions, but profits took another leap on takeover speculation today.
Just yesterday we posted an update on a bullish trade opened on Feb. 2, when Investitute’s scanners detected the purchase of 3,500 September $60 calls for $1.55 and $1.60. Shares were trading for $54.44 back then.
Today those calls surged to $8, a profit of more than 400 percent. The stock gained 21.6 percent in the same period, underscoring how far options can 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.
PF rose 6.19 percent to $66.17 today. The shares rallied after Reuters reported that Conagra had approached the packaged-food company about a possible acquisition, an idea that several analysts supported.