Option traders are turning big gains on upside option positions that were opened in Teva Pharmaceutical (TEVA) yesterday.
On Jan. 3, Market Rebellion’s Unusual Option Activity Service found that 12,000 Weekly $9.50 calls, expiring this Friday, were bought for $0.08 to $0.11 with shares at $9.37. This was clearly fresh buying, as open interest in the contract was just 1,271 before the activity appeared.
Those calls have traded for as much as $0.64 so far this session, at least 5.5 times their purchase prices. The stock gained 8% at the same time, a large move but 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.
TEVA was last higher on the day by 6.24% at $10.14.
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