Bunge surged on takeover speculation just before the closing bell yesterday, turning big gains on bullish option positions.
On Dec. 7, Investtitute’s market scanners flagged the purchase of 5,000 January $72.50 calls for $2.20 as part of a bullish roll with shares at $69.90. This was clearly a new position, as open interest in the strike was only 1,312 contracts before the trade occurred.
Those calls ended yesterday trading for $4.50, double their purchase price. The stock rose 10.7 percent in the same time period, showing how 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.
BG spiked higher by 11.37 percent just before yestrerday’s closing bell to finish at $77.56. Bunge rallied on news that Archer-Daniels-Midland is seeking to acquire the agribusiness company.