Upside options positions spiked higher on news reports that Brookdale Senior Living may be a takeover target.
On May 3, Investitute’s market scanners detected the purchase of 5,250 June $14 calls for $0.70 and $0.75 with shares at $13.65. This was clearly a new position, as open interest in the strike was a mere 2 contracts before the trade appeared.
Today those calls traded for $2, nearly tripling in value. The stock was up less than 13.4 percent in that time, underscoring the kind of leverage that options can provide.
Long calls lock in the price where the 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.
BKD rose 8.32 percent to $15.24 today. Shares rallied on a Reuters report that the senior-community developer is in acquisition talks with Zhonghong Zhuoye Group, a Chinese real- estate firm that took a 21 percent stake in amusement-park operator SeaWorld Entertainment last month.