Square bulls refuse to stay boxed in

Upside option positions drew exponential gains as Square surged on merger speculation today.

On May 2, Investitute’s market scanners found that 1,100 September $20 calls were bought for $1.39 as part of a bullish vertical spread with shares at $18.95. Open interest in the strike was only 82 contracts before the trade occurred, showing that it was a new position.

Today those calls sold for $6, representing a profit of more than 330 percent. The stock has rallied 34.5 percent in the same time frame, a large move but still far less than that of the options.

Long calls lock in the price where the 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.

SQ jumped 6.27 percent to $25.44 today. Loop Capital issued a report this morning suggesting that electronic-payment service PayPal should acquire Square.