Thursday, July 10, 2014

* TRW - Cheater? Stock All-time High on Takeover; Did Someone Know Ahead of Time?

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TRW is trading $98.93, up 8.2% with IV30™ up 36.5%. The Symbol Summary is included below.

Provided by Livevol

This is a stock price and option order flow note in an equity that has just popped to all-time highs (more than 25-years) on rumors of a takeover.

There is circumstantial evidence that someone may have known about this announcement before hand and profited from the insider information to the tune of $640,000 (500%).

July 10 (Reuters) - Auto parts supplier TRW Automotive Holdings Corp said on Thursday it had received a preliminary takeover proposal and was in the process of evaluating it. Bloomberg, citing people familiar with the matter, reported earlier that TRW was in early-stage sale talks with German auto parts supplier ZF Friedrichshafen AG. ZF Friedrichshafen values TRW at $11 billion to $12 billion, although no specific price has been discussed, the Bloomberg report said.

Source: Reuters via Yahoo! Finance TRW Automotive says has preliminary buyout offer, shares surge

And the stock chart...

Provided by Charles Schwab optionsXpress

So there it is.  The stock has hit an all-time high today.

Real Story

Let's start with the Option Statistics.

Provided by Charles Schwab optionsXpress

Nice and easy, the stock averages 262 total options (calls and puts) traded a day, with about an even split between calls & puts.  More clearly, the company averages 149 calls traded across all strikes and all expirations per day.

Now let's turn to the August 95 calls.  Here is an open interest (OI) and volume chart for just those calls.

Provided by Livevol

June 23: 0
June 26: 693
July 9 (yesterday): 1,255

Note those two huge volume days (huge for a firm that averages 149 calls a day). The last one was two days ago where 713 August 95 calls traded. That's ~480% the total daily average call volume in a single strike.  The price paid was ~$1.30 on July 9th and $0.60 on June 25th for an average purchase price of ~$0.90.


If we turn to the Options tab from June 23rd, we can see zero (0) OI in the Aug 95 calls.

Provided by Livevol

And today...

Provided by Livevol

What do ya know... 1,255 long calls.

1255*100*($6 - $0.90) = $640,050

Nice trade...

This is trade analysis, not a recommendation.

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