Regulators are reportedly investigating unusual option activity in Leap Wireless just before its acquisition was announced by AT&T last month.
The probe is being sprearheaded by the Chicago Board Options Exchange on behalf of the Options Regulatory Surveillance Authority , according to a report by USA Today. The CBOE will be looking into the purchase of a large number of calls on July 12, just hours before AT&T disclosed the $4 billion takeover after the market closed that day.
Leap had averaged barely 1,200 options per session at the time, but that day volume spiked to nearly 6 times that amount. optionMONSTER's Heat Seeker detected heavy call buying in the July 9, August 9, and October 8 strikes. The activity stood out even more because more than 80 percent of the trades occurred in the final two hours of a Friday session in the summer, when option activity is typically at its slowest.
The prepaid-cellular company was up 2.57 that day to close the regular session at $7.98. But the stock more than doubled in extended-hours trading after AT&T announced the buyout at a price that was the equivalent of $15 per share.
"Those call buyers now stand to make a fortune. The August 9s, for instance, mostly traded for $0.42 but will be worth more than $8 if LEAP holds its price from late Friday," optionMONSTER co-founder Jon "DRJ" Najarian wrote the following Monday . The October 8s, bought for $1.03, will likely fetch more than $9, and the July 9s will probably soar a ridiculous 8,700 percent from their $0.09 entry price."
"The question now," Najarian wrote in a line that was picked up in the USA Today article published yesterday, "is whether someone will end up in jail for insider trading."
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