September 21st, 2009 8:54 pm EST
2,539 PER Call Options Traded The Day Before Dell Purchase
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Dell announced earlier today that they would be buying Perot Systems for $3.9 billion dollars in cash.
Perot Systems leapt over 65% on this news, closing the day at $29.56. The stock had closed at $17.91 the day before.
Now, there is nothing unusual about this transaction.
However, Bloomberg.com is reporting that there was a MASSIVE surge in call option purchases the day before this transaction was publicly announced.
Apparently there were 2,539 call options traded the day before this buyout was announced, which is a full 242 times the four-week average.
Call options give you the option to buy stock at a certain price and on a certain date.
If a person was certain that a stock was set to move much higher over the short-term, then they would purchase call options on the stock. Why? Call options require a much smaller capital investment and can potentially give you a much better return.
For someone who has insider knowledge about an upcoming transaction, call options are the perfect way to hit a home run.
For instance, whoever bought up all of the October $20 calls on Friday would have banked a 1600%+ return by Monday morning. Not a bad two-day investment.
Details of this transaction CLEARLY leaked to somebody (or multiple people).
The SEC really needs to investigate - it can't be that hard to find out who bought up all of these call options.
If you want to restore trust in the markets, then you really need to crack down on people who engage in these sorts of shenanigans.
If you don't, then you just further enforce the notion that the stock market is not a level playing field (which it isn't), and the average Joes of the world will be even more hesitant about sinking their hard-earned dollars into the market.
Source: Perot Options Trading Hit Seven-Year High Before Bid
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