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OPTIONS BEAT-Heavy trade in aQuantive options raises questions
May 18, 2007 / 9:20 PM / 11 years ago

OPTIONS BEAT-Heavy trade in aQuantive options raises questions

CHICAGO, May 18 (Reuters) - Options trading in aQuantive Inc. AQNT.O surged in the days before Microsoft Corp. (MSFT.O) said it would buy it, leaving a huge windfall for some investors and raising questions about whether the news leaked.

While trade in aQuantive options had already picked up since Google Inc. (GOOG.O) struck a deal to buy DoubleClick last month, volume on Thursday exceeded that daily average by nearly 25 percent. Volume was particularly heavy in a series of calls due to expire within 48 hours of when they were bought.

That has at least one options trader flagging the possibility of insider trading ahead of Microsoft’s $6 billion deal to buy the Web advertising company, unveiled on Friday.

“The option call buying on Thursday was typical of takeover trading when information has leaked,” said Jon Najarian, co-founder of Web site optionmonster.com in Chicago.

The U.S. Securities and Exchange Commission declined to comment.

Microsoft said it would pay aQuantive shareholders $66.50 a share, an 85 percent premium to the closing price of $35.87 on Thursday. The stock surged 78 percent to $63.79 on Friday.

The real money was made on the options, however. Some lucky players swooped in on Thursday to buy May calls for the right to buy aQuantive at $35 by Friday’s close. They also focused on calls granting the right to the shares at $40 by mid-June.

The May 35 calls closed at $1 on Thursday, compared with Friday’s opening price of $28.40, bringing in a tidy windfall of $2,740 per contract. The June 40 calls, which fetched 55 cents a contract on Thursday, opened at $24.30 on Friday.

“If I knew that a stock would be up 78 percent tomorrow. I would suspect that this was tempting information to act upon,” Najarian added.

A total of 12,110 option contracts changed hands in aQuantive on Thursday, out of which 77 percent were calls, up from its daily option volume of 9,810 contracts for May, according to Options Clearing Corp.

Even before that, however, aQuantive options had been unusually busy in several instances after Google agreed to buy DoubleClick Inc. for $3.1 billion on April 13.

NEXT TARGET TALK

Options trading often picks up among rivals of companies being taken over as investors speculate about who might be the next target, said Joe Sunderman, vice president of research and development at Schaeffer’s Investment Research in Cincinnati.

Even after the initial speculation dwindled a few days after the DoubleClick deal, it perked back up later in April when Yahoo Inc. YHOO.O said it would buy the 80 percent of Right Media it did not already own for $680 million.

“On the heels of this acquisition, aQuantive was again thrown in the mix as a future target,” Sunderman said, who noticed above-average call volume on April 27 and April 30.

WPP Group Plc’s (WPP.L) plan on Thursday to acquire 24/7 Real Media Inc. TFSM.O for $649 million added to the froth.

Since the start of May, aQuantive option activity has been elevated with an average call volume of 5,482 contracts, five times its average for January through April, Sunderman said.

That could be partly explained by positioning ahead of its earnings on May 8, as well as takeover speculation.

“The stock has been a rumored takeover since back in April. So, yes, option volume has increased over the last few weeks, but it’s uncertain whether anyone actually had specific knowledge of this takeover price,” said Larry McMillan, president of option-research firm McMillan Analysis Corp.

May options expiration, which occurs on Friday after the close, could have also played a role in the volume surge since traders roll over their existing positions from May into June.

Add all that up and traders said it was hard to pin down whether it all amounted to insider trading, or just luck.

To be sure, Thursday’s call volume stands out, with more than 2,700 May 35 call contracts changing hands before they go off the board on Friday. Najarian noted that most buyers on Thursday bought June 40 calls, as more than 3,000 were bought.

“The volume level for that particular June 40 call is not raising our eyebrows,” Sunderman said, admitting that some of the trading looked unusual. “It would be difficult to say that this was indicative of insider trading.”

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