Option traders are turning big gains on upside option positions that were opened in Teva Pharmaceutical (TEVA) last month.
On Jun. 7, Market Rebellion’s Unusual Option Activity Service found that 3,800 July $7 calls were bought for $0.55 to $0.64 with shares at $7.26. This was clearly fresh buying, as open interest in the contract was just 861 before the activity appeared.
Those calls have traded for up to $1.02 today, a 59.38% return, while the stock rose 10.06% in the same time frame, showing how quickly options can far outpace gains in 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.
TEVA was last higher on the day by 1.6% at $7.96.
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