Bullish option positions in CenturyLink are yielding large returns less than a week after they were opened.
Last Friday, as CTL traded near record lows, Investitute’s market scanners identified the purchase of 20,000 September $20 calls for $0.40 with shares at $18.59. This was the second consecutive session of buying of those calls in heavy volume.
Those calls traded up to $0.87 this morning, more than doubling in value less than four sessions later. The stock was up less than 10.9 percent at 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.
CTL was up 2.41 percent today to close at $20.38. The broadband service provider fell last week amid reports of possible delays in its proposed merger with Level 3 Communictions (LVLT), but shares of both companies have since rebounded.