$WMGI calls skyrocket 13-fold

Merger news has propelled bullish option positions in Wright Medical (WMGI) to huge profits.

On Oct. 10, Market Rebellion’s proprietary programs flagged the purchase of 3,000 November $22.50 calls in one print for $0.45 with shares at $19.32. Open interest in the strike was a mere 122 contracts before the trade occurred, showing that this is a new position.

Those calls have traded for as much as $6.10 today, more than 13.5 times their purchase price. The stock surged 48% 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.

WMGI is up 29.85% to $28.58 in early trading today. Rival company Stryker (SYK) announced this morning that it is acquiring the medical-device maker in a deal estimated at $5.4 billion.