Traders triple their money in $MRVL

Bullish traders cashed in big gains today as Marvell Technology spiked higher on merger reports.

On Sept. 7, Investitute’s proprietary programs cited the purchase of 3,700 November $18 calls for $0.74 to $0.85 with shares at $17.66. This was clearly fresh buying, as open interest in the strike was only 978 contracts before the trades occurred.

Those calls sold for $2.75 today, more than 3.5 times their original purchase price. The stock rose 17.7 percent in the same time frame, illustrating the kind of leverage that can be achieved through options.

Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

MRVL jumped 9.13 percent today to close at $20.20. The Wall Street Journal reported Friday night that the company is in advanced merger negotiations with chip maker Cavium.