Date: May 18, 2008
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In the days before Rupert Murdoch’s $5 billion offer to buy Dow Jones was announced, volume in DJ options increased sevenfold from the typical daily average. Who was responsible for that: astute hedge funds managers and observers of the media scene making an accurate call on Rupert’s intentions – or insiders with knowledge of the deal looking for possible illegal gains? Whatever the case, Dow Jones is not alone. With merger and acquisitions booming on Wall Street, options trading in advance of deals is on the rise as well.
As Bloomberg reports today:
``There is information in options,'' said Michael McCarty, a trader who searches for unexplained options patterns at Meridian Equity Partners Inc. in New York. He pointed out increases in Armor Holdings Inc. and Florida East Coast Industries Inc. options in the past two weeks, before the companies announced takeovers. ``People realize it's silly to ignore it.''
Options trading on U.S. exchanges quadrupled since 1999, reached a record last year and jumped 27 percent so far in 2007, according to data compiled by Chicago-based Options Clearing Corp. The simultaneous growth of mergers and acquisitions has increased the need for policing the market. Seven of at least 12 insider trading lawsuits filed by the U.S. Securities and Exchange Commission this year involve options.
It’s difficult to say whether the options trading is being done by “prescient” analysts of corporate data or crooks, according to the article.
As we were taught in high school French: Plus ça change (plus c'est la même chose).
"Crooks, Astute Shareholders Alike Find Options Prove Prescient" (Bloomberg)