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The Timing Of This Schwab Call Purchase Raises Some Eyebrows

The Timing Of This Schwab Call Purchase Raises Some Eyebrows

Charles Schwab Corporation (NYSE: SCHW) shares rallied 7.8% on Thursday on reports that Schwab will be buying TD Ameritrade Holding Corp. (NASDAQ: AMTD). But while Schwab shareholders had a good day on Thursday, call buyers made a killing.

MarketRebellion co-founder Jon Najarian told Benzinga one particular set of Schwab call options were timed particularly well.

Just over a month ago, a large option trader bought Schwab call options with a $42 strike price and a Nov. 22 expiration date at a price of just 32 cents. Najarian said the timing of these trades and the Nov. 22 expiration date are extremely coincidental. The calls were purchased right before Schwab reported third-quarter earnings, but were they a pure earnings trade?

“They didn't buy the short dated calls they could have purchased,” Najarian said. “So they wanted a bit more time, not indicative of an earnings play, but certainly well-timed and positioned for today's takeover announcement of AMTD.”

Those calls opened Thursday at $8.00, 32 times their purchase price just over a month ago.

Benzinga’s Take

While properly reported insider trading can be perfectly legal, this type of insider trading potentially based on non-public merger information is exactly the type of unfair situation that regulators want to prevent.

However, the fact that the trader bought the calls over a month ago and timed the date of the future merger news so perfectly suggests it may simply be coincidence. Any time a major news item like a merger is announced, certain trades will appear suspiciously timed in hindsight, when in reality the traders simply got extraordinarily lucky.

Do you agree with this take? Email with your thoughts.

Related Links:

Large Option Trader Makes A Killing On Suspiciously-Timed HP Trade

How To Read And Trade An Options Alert


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Posted-In: Jon Najarian MarketRebellionM&A Options Markets Best of Benzinga

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