$SVU bulls ring up major profits

Option traders logged exponential gains on Supervalu’s buyout news today.

On May 29, Investitute’s proprietary programs identified the purchase of 3,300 October $18 calls for $2.55 to $2.95 with shares at $18.24. Open interest in the strike was only 70 contracts before the trades occurred, showing that this was fresh buying.

Those calls sold for $14.25 today, about 5 times their purchase prices. The stock soared 76.64% in the same time period, a huge move but nowhere near that of its options.

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.

SVU rocketed 65.4% to $32.17 today. This morning United Natural Foods announced that it is acquiring the grocery chain for $2.9B.