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DRJ's Blog

February 14, 2013

OK, a little background on Heinz (HNZ).

Average daily call volume in HNZ for the past 30 days has been just under 1,000 contracts in total. That's across all expirations.

Average daily put volume in HNZ for the past 30 days has been under 450 contracts, again in total.

The data below is from our Heat Seeker with the two suspicious accumulations that we find "unusual".

The first and most obvious is yesterday at 12:31:32 pm CT, someone began accumulating June 65 calls for $.30 - $.40. As the spread sheet shows, the buyer was quite persistent and I'd say aggressive, as our data shows multiple same second purchases, even if the trades were somewhat under the radar small lots, all of which under 100 contracts. In total they bought 454 of these calls in the same second on multiple exchanges. We call this "sweeping the book", exhausting all offers across those exchanges.

20 minutes later, the buyer(s) came back for more, stepping up from $.30 to $.35 until they depleted all that was offered at that level.

Ultimately, they bought 2,593 contracts up to that $.40 level as shares traded from $60.65 to $60.87.

These June 65 calls exploded today, gaining some 2100% to $7.60 on the takeover by Berkshire. The profit ($7.60 - $.35 = $7.25 x 2,593 = $1.88 million.

 

 

jun65

 

 

Then the less obvious trade, that was the purchase of a 750 lot of March 60 puts on February 7th for $.70 followed by a 1,000 lot trade of the same March 60 puts for $.75.  Now we all know a put purchase is not a bullish trade, it's insurance, or it's a bearish bet. That is unless the put is purchased along with stock, which these two trades appear to be. Thus, the buyer of stock at say $61 has a profit of $11.50 as the Berkshire takeover is $72.50, and a loss of $.70 x 750 contracts and $.75 on the 1,000 contracts. Thus, the next profit on this bullish trade would be $11.50 x 175,000 shares - options loss ($127,500) for a net profit of $1,885,000.

 

 

mar60puts

 

 

We estimate that the total between both trades, Feb 7th & yesterday's Feb 13th, to yield a net profit of $3,765,000! Will the SEC look into this, or turn a blind eye? Time will tell, but these trades are SIGNIFICANTLY bigger than the normal turnover of calls or puts, and we believe should be investigated, regardless of whom the buyers are, or how politically connected the buyers of the company are.

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