$WCG calls double on deal

WellCare Health Plans surged on acquisition news today, handing large profits to upside option traders.

On March 5, Investitute’s proprietary programs flagged the purchase of 3,200 18April $250 calls for $7.90 to $10.20 as part of a bullish spread with shares at $246.33. Open interest in the strike was a mere 10 contracts before the trade occurred, showing that it was a new position.

Those calls traded for as much as $14.90 this morning, about twice their purchase price. The stock rose 3.67% in the same time frame, illustrating the kind of leverage that can be achieved with options.

Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

WCG spiked higher by 12.34% today, or $28.54, to close at $259.81. Shares rallied after Centene announced that it plans to buy the managed-care company for $17.3 billion in cash and stock.