Option traders opened upside positions in Tenet Healthcare on Friday, and they have already quintupled their money.
Just Friday, Investitute’s market scanners identified the purchase of 5,800 September $15 calls for $0.45 to $0.55 with shares at $13.92. Open interest in the strike was only 763 contracts before the trades occurred, showing that this was fresh buying.
This morning those calls traded up to $2.70, representing an average profit of 440 percent. The stock rose 23.6 percent at the same time, illustrating how quickly options can far outpace 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.
THC jumped 14.6 percent today to close at $16.56. The health-services provider fell sharply after missing earnings expectations and cutting guidance on Aug. 7, handing large profits to bearish option traders, but shares have rallied back in the last two sessions as activist investors have taken stakes in the company.