Traders turn big profits in $MON

Monsanto rallied with merger developments today, resulting in substantial gains for bullish option positions.

On March 26, Investitute’s tracking systems identified the purchase of 2,500 October $120 calls for $4.80 as part of a bullish spread with shares at $117.11. This was clearly a new position, as open interest in the strike was only 944 contracts before the trade occurred.

Those calls rose to $7.50 today, a gain of more than 55%. The stock rose 6.9% in the same time frame, underscoring how options can well outperform their underlying shares.

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.

MON jumped 6.19% to $125.15 today. The agribusiness giant surged on reports that Germany’s Bayer has reached a deal with the Justice Department to acquire the U.S. company for $62.5 billion.