Teva Pharmaceutical rallied sharply after naming a new CEO today, and bullish option positions exploded higher.
Last Thursday, Investitute’s proprietary programs found that 3,770 September $16.50 calls were purchased in one print for $0.16 with shares at $15.67. This was clearly a new position, as volume was above the strike’s open interest of 3,513 contracts.
Today those calls traded up to $2.80, more than 17 times the original price. The stock rose 22.7 percent in the same time frame, illustrating the kind of leverage that can be achieved through options. Investitute co-founder Jon Najarian cited the exponential move on CNBC’s “Halftime Report” this afternoon.
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.
TEVA surged 19.36 percent to $18.50 today. The beaten-down generic-drug maker spiked higher this morning with the appointment of Kare Schultz as its new chief executive officer.