$PF bulls double their money

Pinnacle Foods rose sharply on merger speculations today, yielding large returns on upside option positions.

On June 5, Investitute’s market scanners identified the purchase of 3,486 July $65 calls for $1.60 as part of a bullish roll with shares at $63.99. This was clearly a new position, volume was above the strike’s open interest of 3,044 contracts.

Those calls sold for $3.80 today, nearly 2.5 times their purchase price. The stock rose 4.66% at the same time, illustrating the kind of leverage that can be achieved with options.

Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

PF was up 2.25% to $66.01 today. The food company spiked higher early in the afternoon after Bloomberg reported that ConAgra Brands has approached Pinnacle about a potential buyout.