$TSRO calls soar tenfold on deal

Bullish option traders posted enormous gains in Tesaro on acquisition news today.

On Oct. 25, Investitute’s market scanners identified the purchase of 3,250 January $45 calls for $2.90 as part of a bullish spread with shares at $32.45. Volume was above the strike’s open interest of 2,782 contracts, showing that this was a new position.

Those calls traded for as much as $30.20 today, more than 10 times their purchase price. The stock more than doubled to $73.42 in the same time period, a huge move but still 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.

TSRO skyrocketed 58.47% to $73.50 today. GlaxoSmithKline (GSK) announced this morning that it plans to purchase the biopharmaceutical company for $4.16 billion.