According to Bloomberg call options trading in Perot Systems jumped more than to 225 times the 4 week average just days before the company was bought out this morning by Dell:
Calls volume climbed to 2,539 contracts, or 242 times the four-week average, according to data compiled by Bloomberg. Only 10 puts traded that day, the data show. The shares, which rose 0.1 percent to $17.91 on Sept. 18, surged 65 percent to $29.62 at 11:03 a.m. New York time today.
The last session’s most-active options were October $20 calls, which gained 22 percent to 55 cents Sept. 18 and jumped 1,645 percent to $9.60 today. Those contracts, which expire Oct. 16, are also the most widely owned options, accounting for about half of all 10,353 Perot contracts. Last week’s call volume of 8,279 contracts is almost double that of the preceding three months, according to data compiled by Bloomberg.
Yet something that you may want to consider in your 8 hour daily coffee breaks is the following. We present the option activity in Perot calls last week. Over 2,500 Oct $20 calls were purchased at about $1. The same option is now worth $9.60. The result: an approximately $2.2 million profit in the four days since the accumulation of the options started on September 15 by whoever the party(ies) that were tipped off about this deal. (We are ignoring the $17.50 strikes which also showed suspicious volume early in the month).
It’s safe to say that the risk trade is back! Even if that risk involves 10 to 20 in a 6X3 with your new roommate Bronson. On the bright side, it’s good to see that someone is doing some insider trading because lord knows corporate insiders aren’t…..
Source: ZH, Bloomberg
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.