Staples bulls score big in 24 hours

Upside options positions in Staples turned quick profits today on takeover speculation.

Just yesterday, Investitute’s market scanners found that 5,100 Weekly $9 calls expiring on July 28 were purchased for $0.20 with shares at $8.61. These were clearly new positions, as open interest in the strike was a mere 24 contracts before the activity appeared.

This morning those calls traded for $0.50, a gain of 150 percent in 24 hours later. The stock was up less than 7.8 percent at the same time, showing how quickly 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.

SPLS jumped 6.24 percent to $9.20 today. The stock rallied after Reuters reported that the office-supply retailer was in advanced negotiations to be purchased by private-equity firm Sycamore Partners.