Najarian: Stryker, Mako options active ahead of merger announcement
OptionMonster's Jon Najarian points out what looks to be unusual activity in the options of Stryker and Mako ahead of their $1.65 billion merger agreement.
Najarian, who is a "Fast Money" trader sent me some comments on the activity Wednesday morning:
Today I woke to see the announcement that medical-technology company Stryker had reached a definitive agreement to acquire Mako Surgical for $30.00 per share. I'm sure shareholders of MAKO were delighted to see the value of their positions nearly double overnight from the closing price of $16.17 yesterday. However, I KNOW that some traders were much happier than others, as our work at OptionMonster shows very strong, unusual activity ahead of today's windfall.
On Aug. 27, OptionMonster's trade-monitoring algorithms picked up unusual activity in Stryker, and I mentioned it on CNBC's "FastMoney Halftime Report" as my final trade. SYK shares and call options jumped in value quickly as Stryker ran from $67.04 to $71.94 per share!
Then, three days later (Aug. 30), we also had the unusual activity in MAKO calls and puts (See graphic MAKOoptionmonster)
The trades we cited on OptionMonster were the purchase of 2,500 January 15 calls, sale of 2,500 January 22.50 calls, and the sale of 2,500 January 12.50 puts. The trade, which allowed the owner to control MAKO from $15 to $22.50, was established for $0.80, or a total investment of $200,000 ($0.80 x 2,500 x 100 shares per option). This trade had the potential to expand from $0.80 to $7.50, a level that it achieved today as shares of MAKO exploded to $29 on the takeover—a profit of $1,675,000.
The investors didn't stop there. Najarian continued:
They doubled down this past week, doing a similar spread, buying the January 17.50 calls while selling the January 22.50 calls and January 12.50 puts for a net cost of $0.50. This was done 1,000 times, so that was a $50,000 investment. The potential windfall if shares were above $22.50 would be $4.50 per spread, or $450,000.
Then, just for good measure, someone bought 386 November 22.50 calls for about $0.16, a mere $6,176 investment. But as shares of MAKO traded to $29.53 today, those November 22.50 calls were worth $7. Backing out the $0.16 invested, you get a paper profit of $6.84 on 386 options, or $264,024!
The Securities and Exchange Commission would not comment on whether it is looking into the activity.
—By CNBC's Patti Domm. Follow her on twitter