Patient trade scores big in $FDC

A bullish option position opened in FDC last spring is reaping exponential rewards on merger news today.

Way back on April 10 of last year, Investitute’s market scanners identified the purchase of 8,100 January $17 calls for $1.45 and $1.50 with shares at $15.55. Volume was well above the strike’s open interest of 6,508 contracts before that session began, indicating that this was fresh buying.

Those calls traded for $7 this morning, nearly 5 times their purchase prices. The stock rose 33.76% in the same time period, a large move but nowhere near that of its options on a relative basis.

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.

FDC surged 21.09% to $21.24 today. Shares rallied this morning after financial-technology company Fiserv is buying First Data, which provides e-commerce payment services, for $22 billion.