$USG calls quadruple overnight

Bullish option positions opened when the market was selling off late Friday turned exponential profits today.

Investitute’s tracking systems detected the purchase of 5,700 May $36 calls for $1.15 with shares at $33.79 on Friday afternoon. This represented fresh buying, as volume was more than double the strike’s open interest of 2,579 contracts.

Those calls traded for $4.90 at the end of the session, more than 4 times their purchase price. The stock rose 18.8% at the same time, showing how quickly options can far outpace gains in their underlying shares.

That follows the March 12 purchase of 4,000 April $35 calls for $1.65 and $1.75 above open interest of 360 contracts with shares at $35.26. Those calls traded for $5.10 this morning, tripling in value while shares rose 12.6%.

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.

USG spiked higher by 19.46% to $40.03 today. The drywall maker announced this morning that its board had unanimously rejected an unsolicited takeover bid from Germany’s Knauf for $42 per share.