$VRX calls increase sixfold in a week

It took just five sessions for traders to rack up enormous gains in Valeant Pharmaceuticals.

Last Wednesday, Investitute’s tracking systems found that 3,200 Weekly $13.50 calls expiring this Friday were purchased for $0.26 to $0.29 with shares at $11.97. These were clearly new positions, as open interest in the strike was only 638 contracts before the activity appeared. Investitute co-founder Jon Najarian cited those calls on CNBC last week.

Those calls traded for $1.75 today, more than 6.5 times their original price. The stock rallied 27.2 percent in the same time frame, a large move but 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.

VRX jumped 5.53 percent to $14.88 today. The drug and medical-device company gapped up from $12 yesterday morning after earnings easily topped expectations.