AAI - Lucky Bet or Cheater in Takeover?

Discussion in 'Options' started by livevol_ophir, Sep 27, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    AAI is trading $7.35, up 61.5% with IV30™ down 55.4% on takeover news.

    <img src="http://4.bp.blogspot.com/_hMry1m7UF10/TKDczV0kiDI/AAAAAAAAE_w/NHxY-S7pofA/s1600/aai_summary.gif">

    The news from United Press International:
    "U.S. discount carrier Southwest Airlines said Monday it had agreed to purchase AirTran Airways for $1.4 billion in cash and common stock. The deal values AirTran at $7.69 per share, a premium of 69 percent over the airline's closing share price on Friday, Southwest said in a statement."

    Unfortunately, I think there may be some foul play here pre-takeover announcement. Jeff Kearns from Bloomberg alerted me to this and has already posted an article.

    First, we can look to the OI chart for the Nov 5 calls (<a href="http://livevol.blogspot.com/2010/09/aai.html">in the article</a>).

    That pop came on 9-23-2010 (so the trades were 9-22-2010), 750+ of them. The company averages ~270 calls in total, so 750+ on one line in Nov where the total OI on all strikes was just 5 (five) is "unusual." I've included the Options Tab and below that the Time &amp; Sales tab for 9-22-2010 in the Nov 5 calls (<a href="http://livevol.blogspot.com/2010/09/aai.html">in the article</a>).

    That doesn't look like an accident, just sayin'. An ~$11,000 purchase turns into ~$175,000 in 5 days on several times daily average volume... Boo...

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, charts:

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  2. livevol_ophir

    livevol_ophir ET Sponsor

    I want to be this lucky once... ok, twice...