One options trader cleans house with Martha Stewart deal

In a large and exceptionally well timed trade, one options trader was able to triple their money in just a matter of minutes—by playing a potential deal for Martha Stewart Living Omnimedia (MSO).

The Wall Street Journal reported Thursday that Sequential Brands Group is nearing an agreement to buy Martha Stewart's company for an undisclosed amount. That report sent shares of Martha Stewart Living Omnimedia 12 percent higher before the stock was halted.

Within seconds of the headline crossing the wire, but before the stock was halted, an options trader was able to purchase 2,600 call contracts. An estimated 1,600 of those expire on Friday.

Those volumes were atypical of the average day for MSO options, which sees only 50 call contracts change hands. Yet with today's news, 3,000 call contracts traded.

Once Martha Stewart Living Omnimedia reopened for trading, shares soared into the close. The stock finished up 22 percent higher, but those option increased in value even more.

Read MoreMartha Stewart Living halted on talk of takeover

The calls were bought on average for 30 cents per share. By the close, hours later, they were worth $1.10—a tidy paper profit of $208,000.

Martha Stewart at the NYSE.
Manuel Fuentes | CNBC
Martha Stewart at the NYSE.

The speedy call purchases were likely the result of computer generated trade, which allowed the quick reaction to the Dow Jones headline.

"This is another example of a likely automated trade by a high frequency trading firm," said CNBC Contributor and options expert Mike Khouw. He believes it would be physically impossible for a human to read the headline and enter an order at that speed.

Since going public in October of 1999, shares of Martha Stewart's company are down 82 percent.

A representative for MSO declined to comment when reached by CNBC on Thursday.

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    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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