Why call prices doubled in $IP

Bullish option traders have posted quick gains in International Paper.

On May 15, Investitute’s market scanners identified the purchase of 11,500 July $57.50 calls for $0.48 with shares at $53.17. This was clearly a new position, as open interest in the strike was only 1,144 contracts before the activity appeared.

Those calls traded for $1.05 today, more than twice their purchase price. The stock rose 5.2% in the same time frame, showing how quickly options can outpace gains in 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.

IP was up 0.83% today to close at $55.69. The paper and packaging company rallied last week after announcing that it will not attempt a hostile takeover of Irish rival Smurfit Kappa.