$QCOM calls hit stratospheric heights

Qualcomm spiked higher on reports that Broadcom is seeking to buy the rival chip maker, yielding gigantic profits on bullish option positions.

On Sept. 14, Investitute’s tracking systems detected the purchase of 14,400 December $57.50 calls for $0.51 to $0.61 with shares at $51.02. These were clearly new positions, as open interest in the strike was only 1,600 contracts before the trades occurred. Investitute co-founder Jon Najarian cited the unusual activity that day on CNBC’s “Halftime Report.”

Those calls traded up to $8.99 this afternoon, more than 17 times its original purchase price. The stock surged 25.5 percent in the same time period, a huge move but one that was still dwarfed by 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.

QCOM surged 12.71 percent today to close at $61.81. The reported acquisition bid by Broadcom could be worth more than $100 billion, one of the largest corporate takeovers in history.