Thursday, May 15, 2014

* Gentiva Health (GTIV) - Takeover Bid Explodes Stock up 62%. Did Someone Cheat to Make 3700% in Two Days?

GTIV was the largest gainer today up 61.94% to $13.83 ($5.29). The Symbol Summary is included below.

Provided by optionsXpress Charles Schwab

The news was simple: a buyout offer... which was quickly rebuffed.  Here's a news snippet:
What: Shares of Gentiva Health Services (NASDAQ: GTIV ) , a provider of home health, hospice, and community care, skyrocketed higher by as much as 70% after rival Kindred Healthcare (NYSE: KND ) made an unsolicited bid for the company.

Source: The Motley Fool via Yahoo! Finance Why Gentiva Health Services Inc. Shares Catapulted Higher, written by Sean Williams

Good for GTIV shareholders, and one person in particular seemed quite lucky today... yeah, that kind of lucky.

Let's start with the Option Statistics (last 30 days).

Provided by optionsXpress Charles Schwab

We can see that GTIV averages 261 total option contracts (calls and puts combined) traded a day on all strikes across all expiries.  That means ~209 calls a day.  That average is more like 122 calls traded day over a longer time period (90 days) per Livevol.

Ok... let's turn to the open interest (OI) chart for just one option in particular: the May 10 calls.

Provided by Livevol

Three phenomena that caught my eye:
1. The OI stepped up from 92 on 5-2-2014 to 1,842 today (12 days).
2. The OI grew in three large chunks (see the yellow circles at the bottom).
3. This is the bad one: The last chunk of 800 were bought two days ago (and three days before expiration).

Here's the Option Tab as of today.

Provided by Livevol

We can see the open interest as of today is 1,842.  That interest grew in chunks of 400-900 on three distinct days.  Each of those days showed several hundred percent the total daily average volume in just that single option.

And the price paid for those options... $0.10... yummy...

The Charts Tab (two-years) is below.

Provided by optionsXpress Charles Schwab

The point here is simply that the move today puts the stock at multi-year highs.

Opening Order: ~1,700 May 10 calls bought for $0.10 for a cost basis of $17,000

Corrected (5-15-2014):
Today: The options expiring tomorrow are worth ~3.80 or $629,000 for a 3700% gain.

Is it possible these bets were pure speculation and totally legitimate on an immediate move up in GTIV? Yes.

Do I think this was legitimate speculation? No.

This is trade analysis, not a recommendation.

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