$P pays off again for call buyers

Bullish option traders Pandora tripled their money in Pandora after merger news today.

On Aug. 29, Investitute’s tracking systems showed that 4,000 Weekly $8.50 calls expiring on Oct. 5 were purchased for $0.34 to $0.50 with shares at $8.29. These were clearly new positions, as open interest in the strike was a mere 15 contracts before the trades occurred. Based on this unusual activity, Investitute co-founder Jon Najarian named Pandora as his final trade on CNBC’s “Halftime Report” at that time and Pete Najarian followed up with a segment on the name the next day.

Those calls traded up to $1.35 this morning, more than 3 times their average purchase price. The stock rose 17.85% in the same time frame, underscoring how options can far outperform their underlying shares. It was the third winning trade in Pandora posted on Investitute in the last three weeks.

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.

P spiked to $10.01 this morning before pulling back to close at $8.98, off 1.21% on the session. Before the market opened, Sirius announced that it will purchase the online music service in an all-stock deal estimated at $3.5 billion.