It took just 24 hours for option traders to see huge gains in upside positions on Aerie Pharmaceuticals.
Just yesterday, Investitute’s tracking systems detected the purchase of 5,000 November $60 calls for $3.21 as part of a bullish spred with shares at $50.65. This was clearly a new position, as open interest in the strike was only 188 contracts, before the position was established. Investitute co-founder Jon Najarian chose the name for his final trade yesterday on CNBC’s “Halftime Report.”
Those calls traded for $5.50 today, nearly doubling their purchase price. The stock was up 9.1 percent in the same time, showing how quickly options can far 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.
AERI jumped 5.23 percent to $54.35 this afternoon. The drug maker rallied as investors rotated into the pharmaceutical industry today.