$PENN call prices rocket 8-fold

Traders collected huge winnings today on options in Penn National Gaming that expired this afternoon.

On April 12, Investitute’s market scanners identified the purchase of 5,100 May $29 calls for $0.75 to $0.90 with shares at $26.64. This was clearly fresh buying, as open interest in the strike was only 959 contracts before the activity appeared. Investitute co-founder Jon Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those calls traded for $6.60 this morning, nearly 9 times their initial purchase price. The stock rallied 33.6% in the same time frame, a large gain 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.

PENN was down 1.69% to $34.85 but has climbed steadily since reporting strong quarterly numbers on April 26. The casino operator also rallied along with other gambling names after the Supreme Court cleared the way for nationwide sports betting this week.