CIT Group (CIT) - Gambler shows his hand

Happening right now: As I sit here on the exchange floor, I am keeping a close eye on the 1 strike puts in other months; the exchange floor rumor mill is rife with whispers of more put selling on that line.
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CIT Group Inc. is up on rumor that Hedge fund manager John Paulson is considering a potential merger with defunct IndyMac Federal Bank. Apparently the market sees the combination of troubled home loans (IndyMac) and troubled small business commercial loans (CIT) as a good fit. A look at the options markets shows that someone may have had a good idea of what was to come and what the reaction would be.

Peaking at the LevelII quotes from LVP we see:

The Nov 1 puts in CIT had an open interest (OI) of 921 contracts as of the open on Friday 9/25/2009.



On Monday 9/28/2009 the OI spiked to 102,258 (trades occurred Friday); implying someone opened up a 100k contract position. Looking at the Time&Sales Tab on LVP I can see the order(s) was a sale smacking the bid on NYSE ARCA at a dime.



On Tuesday 9/29/2009 the OI jumped yet again to 200,861 (trades occurred Monday); implying another opening 100k contract position (also a sale), this time on AMEX.



Net the position collected $2,000,000 in premium with the risk of getting long 20 million shares for $1.00