February 17, 2017 / 6:57 PM / 3 years ago

Options bets on Unilever surged ahead of Kraft Heinz bid

NEW YORK, Feb 17 (Reuters) - Options on the U.S-listed shares of Unilever drew unusually large and bullish trading activity ahead of Friday’s disclosure by Kraft Heinz Co that it had made a $143 billion bid for the Anglo-Dutch food company.

Despite Unilever’s rejection of the bid, the company’s U.S.-listed share price rose more than 14 percent on Friday. The gains, however, paled in comparison with the sharp appreciation in certain bullish options contracts bought over the last two days leading up to the rejected bid.

With shares near $42 on Wednesday, traders lapped up near-dated bullish options contracts on Unilever NV in heavy volume. A total of 11,141 contracts changed hands, compared with the average daily trading volume of just 210 contracts, per options analytics firm Trade Alert.

“The timing of these large call buys is certainly interesting given the news Friday morning,” said Fred Ruffy, options analyst at New York-based Trade Alert.

Calls betting on Unilever NV shares rising more than 7 percent by mid-March were the most actively traded with 6,303 contracts changing hands. The shares were at $48.26 at 1.32 p.m. (0632 GMT) on Friday, up $5.94 or 14 percent.

Buying a call conveys the right to purchase shares at a fixed price in the future, while buying puts conveys the right to sell shares.

These calls, which were bought for an average price of 20.5 cents each, traded as high as $2.85 on Friday. For example, one trade on Wednesday where an investor actually paid $10,000 for 500 March 45 call options would have resulted in a net profit of $132,500 by Friday if the position was closed at the high price.

“The timing of the purchases, and the fact that the focus was on short-term calls, with a strike price higher than the share price, suggests that somebody was anticipating a short-term advance in shares,” Ruffy said.

Options activity has been known to spike before the public announcement of deals, and the U.S. Securities and Exchange Commission has in the past announced enforcement action for alleged insider trading involving options.

The SEC did not immediately respond to a request for comment. (Reporting by Saqib Iqbal Ahmed; Editing by Daniel Bases and Andrew Hay)

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