Market Insider

Imperial Holdings' Unusual Option Activity Precedes Reports of FBI Raid

Unusual option activity today in the stock of a Florida financial company preceded news reports of a trading halt and an FBI raid. The stock is Imperial Holdings, a company that went public in February of this year.

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Trading in shares of Imperial Holdings was halted today at 1:42pm ET. Soon after, the Palm Beach Post reported that the FBI and police had raided the financial firm. According to the Post, the company lends money to policyholders to pay their life insurance premiums and buys structured settlements, awarded to plaintiffs in lawsuits.

According to Interactive Brokers Trader Workstation, volume spiked in October $5 puts on shares of IFT at about 10:30am Tuesday.

Before today's trading session, open interest was zero for that strike—closing volume on the $5 October puts was 1,058 contracts.

Total trading volume on puts and calls today was 2,003 contracts or, 200,300 shares versus open interest close of business Monday of 324 contracts or, 32,400 shares.

Before the trading halt today, about 83,000 shares of IFT had traded.

Bill Lefkowitz, of vFinance Investments, said, "It is very rare that you will see more options trade than the shares of the underlying stock. However, you can see this when there is an expected—or unexpected event such as earnings or a takeover rumor."

According to SEC filings, underwriters of IFT included FBR Capital Markets, Wunderlich Securities and JMP Securities.

An August 11 report from FBR on Imperial Holdings said:

"Fundamentals remain intact; compelling valuation - FBR Capital (6.90 ): FBR Capital believes the dramatic underperformance in IFT is NOT a reflection of any change in fundamental business performance. In fact, they argue that the low interest rate environment, volatile equity market and increasing illiquidity for esoteric assets bodes well for IFT as it creates both more origination opportunities (the need for liquidity is increased by low interest rates and volatile equity markets) and more attractive acquisition pricing (declining liquidity means less competition for buying policies). Trading at 66 percent of TBV with over $6/sh in cash on the balance sheet and 3x FY12 EPS ests, they find the current valuation extremely compelling."

Lefkowitz added that the company hasn't turned a profit in the past three years.