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Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Bulls See Major Upside in CommonWealth REIT

By David Russell, reporter at OptionMonster

NEW YORK -- Barbarians have been at the gates of CommonWealth REIT (CWH), and Thursday the options traders jumped in.

OptionMonster's tracking systems detected the purchase of about 2,000 October 25 calls for $1.30. Seconds later, a similar number of October 30 calls were bought for 35 cents. Volume was more than triple the previous open interest at each strike, indicating that new money was put to work on the long side.

These options lock in prices where investors can buy the stock no matter how high it may rise, which gives them potentially huge leverage if it continues to advance.

CommonWealth exploded higher on Tuesday after Corvex Management and Related Cos. offered to buy the company for $27 a share, arguing that they could manage it more profitably.

The shares were up barely 2% when Thursday's calls were purchased, but the traders were apparently onto something because the stock rallied hard into the close and shot up 12% to $25.25. Related and Corvex apparently think that the shares belong closer to $50, so if they work toward that level the call-buyers will be looking at quadruple-digit gains.

Total option volume was 14 times greater than average in the name.

Russell has no positions in CWH.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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