The Eli Lilly And Co (LLY) Double-Down

Option traders are banking big profits in upside option positions that were opened on Eli Lilly And Co (LLY) a month ago.

On May 12th, Market Rebellion’s Unusual Option Activity Service identified a sophisticated bullish spread on Eli Lilly (LLY). Smart money purchased 7,500 June 850 calls for $5.85 to $6.00, well above the existing open interest of 670 contracts, while simultaneously selling 7,500 June 960 calls for $1.02 to $0.87, above open interest of 1,284 contracts, with shares trading between $751.46-$752.49.

But here’s where it gets interesting – three days later on May 15th, the position saw a double-down, adding another 6,401 June 850 calls for $5.40 (now below the massive open interest of 9,223 contracts built from the initial trade) and selling 6,401 more June 960 calls for $1.05 (below open interest of 8,974 contracts) with the stock having pulled back to $736.34.

Those June 850 calls have traded for as much as $7.90 this session, at least a 33.48% return, while the stock gained at least 11.02% at the same time, 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.

LLY was last higher on the day by 0.37% at $811.43.