While Nelson Peltz's bid for Family Dollar Stores caught equity traders by surprise, options players were well ahead of the deal, selling puts before it was announced.
Reports that Peltz, the investor famous for bets on restaurant chains like Wendy's , is offering to buy the discount retailer for $55 to $60 a share in cash — a 25% premium to Family Dollar's share price — sent the stock 21% higher on Wednesday to close at $53.25.
"Family Dollar saw quite a lot of activity in puts in the days leading up to the Peltz's bid for the company," said Michael Khouw, Cantor Fitzgerald's Director of U.S. Equity Derivatives Trading. But Khouw noted that much of the put activity centered around put selling, which is a bullish strategy.