A surge in option market bets on Sony just before a large hedge fund investor announced a big stake and called for a major restructuring of the company has raised concerns that some traders may have had advance word of the news.
U.S.-listed shares of Sony jumped 9.9 percent to close at $20.76 after Daniel Loeb's Third Point hedge fund said on Tuesday it accumulated more than 6 percent of Sony's shares - a stake worth $1.1 billion - making it the largest shareholder in Japan's biggest electronics company.
But on Monday, the day before that announcement, trading volume in Sony options soared by more than seven times the average daily activity in the last three months. Volume in its stock rose to 6.1 million shares, more than doubling the average 2.7 million shares over the past 25 days.
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Investors zeroed in on June call options at $19 a share on Monday, which at the time were slightly out-of-the-money when U.S.-listed shares closed at $18.89. Nearly 10,000 of those calls were bought on Monday for around 87 cents on average. Those calls, each representing 100 of the underlying shares, were worth $2.20 on Tuesday, which works out to about a potential $1.33 million profit.
"Monday's trading in Sony options appears suspicious, considering the extraordinary volume relative to their average and the bullish direction of those bets," said Ophir Gottlieb, managing director of options analytics firm Livevol.
There is no specific evidence that the trading was based on any prior knowledge of Loeb's announcement and some said it is possible the activity may reflect speculation that shares will continue to rise along with the rest of Japan's stock market, which has been rallying in recent months.
"Options bets initiated in Sony in both calls and puts on Monday seemed very well-timed ahead of this news but given the rally in U.S. and Japanese markets, this could be an allocation of capital to assets that have been sharply increasing in value," said Henry Schwartz, president of options analytics firm Trade Alert.
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