Some savvy traders stand to make millions off Friday's General Electric deal as a result of some very well-timed options trades.
On Thursday, when GE stock was trading around $25, traders starting aggressively buying the April 26-strike calls for around 33 cents each. A call purchase is a bullish bet that a stock will rise a certain amount within a set time. All told, nearly 18,000 of those calls traded.
GE shares rallied 8 percent Friday after the company announced it will sell its finance arm and buy back stock. With the advance, those call options are now worth $2 each, a sixfold increase that created an instant windfall for the buyers.
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"The rumor had been out there," said Dan Nathan, a CNBC contributor, who first wrote about the activity on RiskReversal.com. "GE is not a name we usually see short-term speculation in the options market."
Most curious about those purchases is that those April calls expire next Friday, giving whoever bought them precious little time for their bets to pay off.
"The punters were out in force yesterday playing for quick home run, and they got it," added Nathan.
This isn't the first time GE has attracted the attention of options traders. Back in early march, a market participant bought 125,000 of the January 2017 30-35 call spread for 50 cents per contract. Since each call contract controls 100 shares, that trade represented a $6.25 million bet that GE shares will rise above $35 by January 2017. With Friday's move, the firm that put on that trade has doubled their money.
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"Hedge funds have been buying calls for some time now," noted Nathan.
Even with Friday's rally, GE shares are still less than half of the all-time high set in 2000.
