$S calls dial up 4-fold profits

Option traders racked up exponential gains on bullish positions in Sprint today.

On April 29, Investitute’s market scanners identified the purchase of 5,000 June $7 calls for $0.25 to $0.28 with shares at $5.51. This was clearly a new position, as open interest in the strike was only 1,405 contracts before that session began.

Those calls traded for as much as $1.26 today, more than 4.5 times their purchase prices. The stock surged 42.47% in the same time frame, a huge move but still nowhere near that of its options on a relative basis.

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.

S surged 18.77% to $7.34 today. The wireless carrier rallied after the Federal Communications Communication indicated support for its merger with rival T-Mobile this morning.

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