Tuesday, June 4, 2013

ExactTarget (ET) - Takeover -- Lucky Trade or Cheater?

ET is trading $33.71, up 52.5% with IV30™ down 63.9%. The LIVEVOL® Pro Summary is below.


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ExactTarget, Inc. is a global provider of cross-channel, interactive marketing software-as-a-service (SaaS) solutions. The Company’s solutions provide marketers with a suite of integrated applications. The Company’s suite of cross-channel, interactive marketing applications include e-mail, mobile, social media and sites, is built on its flexible multi-tenant SaaS platform.

So, first the news -- it's a takeover:

Salesforce.com (CRM) has signed a definitive agreement to acquire ExactTarget (ET) in a cash deal worth approximately $2.5 billion. Under the terms of the deal, each ET shareholder will receive $33.75 per share in cash.

The deal is expected to close by the end of July 2013.

Source: PR Newswire, Reuters

Unfortunately, this is one of those notes where I see some unusual option activity ahead of the news and it's suspicious... Let me build the story.

First, let's look at the average option volume for ET over the last three-months:

So, we can see the firm averages 271 calls traded a day, and that number includes the anomaly I am about to demonstrate.

Let's look to a chart of option volume over the last two-years.  The scale is linear -- the spike in May 10. 2013.

We can see pretty clearly that May 10th was a wildly high option volume day for ET -- more so than any day in the last two-years by a large amount.  And, what was the volume? How about 4,411 calls and 28 puts.  Specifically, the May 20 calls traded 2318 times and the Jun 20 calls traded 1,643 times on OI of just 43.  The purchase price for those Jun 20 calls was ~$1.30, though they ranged from $0.90 to $1.60.  The may 20 calls were purchased for ~$0.50.

Now those May options expired before the takeover news, although they did increase in value to $2.50 -- so about a 400% gain, but, ya know, coulda just been some spec buying (or whatever).

The story is those Jun 20 calls, and here's why.  I have included the ET Options Tab from today, below.

Those $1.30 calls are now worth ~$14.00 making the gain on thoe options well over $1,000,000 and then look at the OI of every other option (calls and puts) for every other expiration and every other strike in ET.  What do ya know, the Jun 20 calls are the largest of any other.

This feels awfully suspicious, though I'm not screaming bloody murder -- there are several circumstances that make this trade just "a trade," with no impropriety.  Having said that, it compelled me to write about it, which means it compelled me to tell you about it.

Good trade... right?

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