* Sony option and share volume far above normal on Monday
* Trades include June $19 call buy and June $16, $17 put
By Doris Frankel
May 14 A surge in option market bets on Sony
Corp just before a large hedge fund investor announced a big
stake and called for a major restructuring of the company has
raised concerns that some traders may have had advance word of
U.S.-listed shares of Sony Corp jumped 9.9 percent
to close at $20.76 after Daniel Loeb's Third Point hedge fund
said on Tuesday it accumulated more than 6 percent of Sony's
shares - a stake worth $1.1 billion - making it the largest
shareholder in Japan's biggest electronics company.
But on Monday, the day before that announcement, trading
volume in Sony options soared by more than seven times the
average daily activity in the last three months. Volume in its
stock rose to 6.1 million shares, more than doubling the average
2.7 million shares over the past 25 days.
Investors zeroed in on June call options at $19 a share on
Monday, which at the time were slightly out-of-the-money when
U.S.-listed shares closed at $18.89. Nearly 10,000 of those
calls were bought on Monday for around 87 cents on average.
Those calls were worth $2.20 on Tuesday, which works out to
about a potential $1.33 million profit.
"Monday's trading in Sony options appears suspicious,
considering the extraordinary volume relative to their average
and the bullish direction of those bets," said Ophir Gottlieb,
managing director of options analytics firm Livevol.
There is no specific evidence that the trading was based on
any prior knowledge of Loeb's announcement and some said it is
possible the activity may reflect speculation that shares will
continue to rise along with the rest of Japan's stock market,
which has been rallying in recent months.
"Options bets initiated in Sony in both calls and puts on
Monday seemed very well-timed ahead of this news but given the
rally in U.S. and Japanese markets, this could be an allocation
of capital to assets that have been sharply increasing in
value," said Henry Schwartz, president of options analytics firm
The department of market regulation at exchange operator
CBOE Holdings does review unusual trading activity on a
regular basis, but they do not comment on any specific
situation, a CBOE spokeswoman said.
The U.S. Securities and Exchange Commission, which looks
into unusual stock and option activity, declined to comment.
A representative for Sony was not immediately available for
But some in the options market said they thought word of
Loeb's position could have leaked into the market.
Gottlieb said the fact that Sony had released earnings only
last week - often a major focus for share and options trading -
meant there was a greater chance the surge in interest on Monday
may have been related to some insider knowledge.
A recent study done for Reuters found there are numerous
examples of unusually heavy options trading prior to
On Monday, traders exchanged 43,000 calls and nearly 16,000
puts on Sony's stock, Livevol data show. Over the last three
months, Sony has averaged 8,331 contracts traded per day with
5,175 calls and 3,155 puts, according to Livevol.
A call option gives an owner the right, but not the
obligation, to buy an underlying security at a certain price by
a set date. A put option gives the holder the right to sell
shares at a given price by a certain date.
"Option traders on Monday started to load up on cheap
directional bets on Sony, most likely due to information being
disseminated on trading desks before it was publicly available,"
said Steve Place, a founder of options analytics firm
investingwithoptions.com in Mobile, Alabama.
Japan-listed shares of Sony have soared 96 percent this year
to 1,877 yen each as of Tuesday, as the struggling electronics
giant has aggressively cut costs and sold assets. Loeb, in
announcing his stake, called for Sony to sell its entertainment
Last week, Sony reported a 2012/2013 operating profit that
was its highest in five years. The company is now betting on
smartphones to offset declining sales of TVs, cameras and gaming
Some investors may have reaped a tidy windfall with
well-timed directional bullish bets that involve both buying
calls and selling puts.
The most active calls on Monday were the May $20 strikes
where 15,000 contracts were bought for a premium of 15 cents
each, Trade Alert said. Those calls cost $1 per contract during
The buyer of those May $20 strike calls paid $225,000 for
the 15,000 contracts on Monday to close out an existing
position, Schwartz said. Had they done so on Tuesday after the
share price rally, the cost would have been much higher, around
There was also substantial selling of put options in the
June $16 and $17 strikes on Monday. Selling put options is a
neutral to bullish strategy. The increase in the share price
caused those puts to decline in value, resulting in profits for
those June sellers, Schwartz said.