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How a trader made 275% profit in minutes

Quick-handed traders made some pretty profits in Avon this week.

Trading for the cosmetic company were halted Thursday afternoon on Wall Street Journal reports that the company was in talks with private-equity firms to sell itself. The stock was halted at 1:46 p.m. Eastern, and when it reopened minutes later, shares soared more than 11 percent before fading to a 52-week low into the close. But some smart options traders were able to cash in on the news.

Read More Avon Discusses Stake Sale With Private-Equity Firms

"Options volume ran four times its daily average on Thursday," Dan Nathan told CNBC's "Fast Money" on Thursday. "And the stock saw a flurry of call buying today at 1:45 p.m., moments before the stock was halted."

More than 2,000 of the September 4.50-strike calls were bought for an average of 20 cents each just prior to the halt. Since buying a call option allows one the right to purchase a stock at a set price for a given time, this is a bullish bet that the stock would be above $4.70 by Friday.

"Right after the halt at around 1:51 p.m., those same calls started trading at 40 cents," added Nathan, founder of RiskReversal.com. "They traded as high as 75 cents through the end of the day," he added. That's a 275 percent increase in less than a couple of hours. "There was some very, very quick trading and quick profits."

Shares of the century-old cosmetic giant have been steadily declining for the past five years, down more than 86 percent over that period. "This thing looks like its heading to zero," said Nathan. "I'm not sure what private equity thinks they are going to do to turn this thing around."

Despite the swift profits, Nathan warns this is not necessarily the smartest strategy for investors. "I generally don't like going out and buying short-dated calls based on headlines," he said, as oftentimes the stock will see a quick spike and quicker decline.

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  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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