Option traders are cashing in as Pfizer considers selling a major part of its business.
On Sept. 12, Investitute’s proprietary programs cited the purchase of 53,600 January $36 calls for $0.72 to $0.75 with shares at $35.09. This was clearly fresh buying, as volume far exceeded the strike’s open interest of 6,059 contracts.
Today those calls sold for as much as $1.30, nearly double their original purchase price. The stock rose just 3.9 percent in the same time period, illustrating the kind of leverage that can be achieved through 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.
PFE was up 0.72 percent to close at $36.40 today. The drug maker spiked to a 52-week high of $36.51 this morning after announcing that it is considering the sale of its $3.4 billion consumer health-care business.
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