Why $TEVA calls skyrocketed

Bullish option positions soared today as Teva Pharmaceutical announced massive cost-cutting plans.

On Nov. 15, Investitute’s tracking systems detected the purchase of 10,600 December $12.50 calls for $0.30 to $0.72 with shares at $12.52. Volume was well above the strike’s open interest of 7,888 contracts, indicating that this was fresh buying.

Those calls traded up to $5.63 today, more than 18 times their original purchase price. The stock surged 44.6 percent in the same time frame, a huge move but still nowhere near that of its options.

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 jumped 10.19 percent to $17.30 today. The company is beginning a restructuring program that includes 14,000 layoffs, or more than 25 percent of its work force, aimed at reducing costs by $3 billion.