GrubHub call buyers post 400% profit

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Upside option traders cashed in exponential gains as GrubHub continued to rally today.

On July 20, Investitute’s proprietary programs cited the purchase of 4,000 August $50 calls for $1.30 to $1.45 with shares at $45.73. These were clearly new positions, as open interest in the strike was just 798 contracts before the activity appeared.

Today those calls sold for as much as $7, representing an average profit of more than 400 percent. The stock rose 24.6 percent in the same time frame, showing the kind of leverage that can be achieved through options.

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.

GRUB jumped 8.25 percent to $56.96 today. Morgan Stanley upgraded the the food-delivery service to “overweight” from “equal weight” and raised its price target on the name to $59 from $43 this morning. GrubHub spiked higher on Friday on news that it had purchased Yelp’s Eat24 online-ordering company for $287.5 million.

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Mike Yamamoto | Investitute

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