Aug 28 Options market maker Timber Hill said it
has asked the Options Regulatory Surveillance Authority to look
into unusual bullish option trades in wireless carrier Leap
Wireless International Inc ahead of a takeover deal
announced on July 12.
The regulatory authority, in response to the Timber Hill
request, is reviewing the trades "to determine if any exchange
or SEC rules may have been violated," according to a report in
USA Today on Tuesday. Timber Hill is a division of Interactive
Options volume on Leap surged on July 12 ahead of an
announcement after the close of trading that AT&T would acquire
Leap. There was noteworthy interest in the call options on the
stock. The timing of large bullish option trades on Leap while
the U.S. financial markets were still open, raised concerns that
the news may have reached investors ahead of time.
"In the early afternoon on July 12 during the trading
session, there was aggressive call buying" in Leap options, said
Sean Flynn, an options trader at Timber Hill. "When this type of
activity occurs we tend to believe it is not pure luck or
Last month "we asked the Options Regulatory Surveillance
Authority to look into the unusual trading," he said on
AT&T agreed to acquire Leap for $1.19 billion, or $15
per share. The price represented an 88 percent premium to Leap's
closing share price of $7.98 on Friday, July 12.
Leap's shares more than doubled to $17 in after-hours trade
on that day. The stock closed at $16.95 on the following Monday.
USA Today quoted Interactive Brokers Group Chief Executive
Officer Thomas Peterffy as saying its market makers had sold
Leap calls and that the firm had incurred an immediate loss of
$1.5 million when the news was announced. Peterffy did not
immediately respond to an email from Reuters.
"Looking into the data, we saw early on July 12 sporadic
call buying on Leap that accelerated in the last 18 minutes
before the close of trading," said Eric Hunsader, Chief
Executive of Nanex, a data feed provider in Chicago.
"Most of the buying occurred in the $7, $8, $9 and $10
strike calls with the bulk in the contracts that expire in
July," Hunsader said.
Owners of 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.
The U.S. Securities and Exchange Commission on Wednesday
declined to comment on the Leap options activity.
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
The activity in Leap options is another instance of unusual
trading in the options market preceding market-moving news.
Two studies done for Reuters found there were numerous
examples of unusually heavy options trading prior to