$XPO bulls pocket major profits

XPO Logistics spiked higher on merger speculation today, handing huge profits to upside option traders.

On Nov. 1, Investitute’s tracking systems flagged the purchase of 2,000 February $80 calls for $1.90 as part of a bullish roll with shares at $69.40. This was clearly a new position, as open interest in the strike was a mere 31 contracts before the trade occurred.

Those calls sold for $11.49 just before the closing bell today, more than 6 times their purchase price. The stock rallied 29.7 percent in the same time period, showing how options can far outperform 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.

XPO surged 14.39 percent to $90.01 today. The transportation-logistics company rallied sharply on news reports that it had held negotiations with Home Depot about a possible acquisition.