* KKR call volume on Nov. 13 above average
* KKR April 2014 $10 strike calls stand out
By Doris Frankel
Dec 17 Well-timed bullish option bets on
specialty finance company KKR Financial Holdings, placed
a month before a takeover announcement, have generated big paper
profits for a number of call positions.
KKR Financial shares jumped 30 percent to $12.34 on Tuesday
afternoon, one day after private equity firm KKR & Co LP
said it had agreed to buy the company in a $2.6 billion deal.
KKR Financial attracted unusual call option buying on Nov.
13 on volume that was above the few hundred contracts that
typically trade on a daily basis on the stock, according to
options analytics firm Trade Alert.
Owners of equity call options, contracts that convey the
right to purchase the company's shares at a fixed price by a
certain date, benefit because as the stock rises, the value of
the call option goes up.
Call volume on Nov. 13 was 43 times normal, with a total of
13,000 contracts changing hands. Trade Alert President Henry
Schwartz said 91 percent of that volume was in the April 2014
$10 strike calls which traded 11,844 times on that day.
Nearly 9,600 of those contracts were bought for an average
price of 20 cents per contract. Clearing data on Nov. 14 showed
that 5,349 contracts in the April $10 strike were new positions,
Schwartz said. The stock, which had been fallen more than 13
percent over the previous three weeks, closed at $9.60 on Nov.
Schwartz said some of these call positions were apparently
closed out on Tuesday at $2 per contract, a 900 percent paper
"These call purchases look suspicious because they are
well-timed and they are above the normal amount of trading. It
was a multi-year record for out-of-the money call activity,"
On Nov. 13, a trader bought nearly 5,500 April $10 strike
calls for 15 cents apiece, said Andrew Keene, president of
options trading firm KeeneOnTheMarket.com in Chicago.
The trader will obviously net a huge profit, Keene said. The
trader invested around $82,500 in these calls and the position
is now worth over $1.15 million.
It can be hard to pin down whether unusual trading in a
company's options stems from sources who had knowledge of the
news or is just innocuous speculation.
The U.S. Securities and Exchange Commission, which looks
into unusual share and options activity, declined to comment.
In 2006, the U.S. options exchanges set up the Options
Regulatory Surveillance Authority, ORSA, an entity to
collaborate on insider trading surveillance and investigations.
A spokeswoman for the Chicago Board Options Exchange, which
coordinates efforts for ORSA, said: "CBOE takes its regulatory
responsibility very seriously and does investigate unusual
trading activity, however, we do not comment on individual
A spokeswoman for KKR and KKR Financial declined to comment.
Two studies done for Reuters found there were numerous
examples of unusually heavy options trading prior to