Heinz Options Bet Before Deal Gives $1.9 Million Profit

Options traders who piled into bullish H.J. Heinz Co. bets before Berkshire Hathaway Inc. and 3G Capital agreed to buy the ketchup maker made almost $1.9 million on the wagers.

Nearly 2,600 June $65 calls, which give the right to buy the underlying shares, changed hands yesterday for about $91,900, data compiled by Bloomberg show. The contracts, with an exercise price 6.8 percent above the Feb. 12 close, were worth $1.99 million at 12:28 p.m. in New York today, creating a profit of $1.89 million. Overall call volume rose to 3,460 contracts yesterday, the most since Jan. 31 and almost 14 times more than trading in puts.

Warren Buffett’s Berkshire Hathaway and Jorge Paulo Lemann’s 3G Capital agreed to buy Heinz for about $23 billion today as the billionaires increased their bets on consumer products. Heinz shares jumped 20 percent to $72.49, adding $3.86 billion to Pittsburgh-based company’s market value, according to data compiled by Bloomberg.

“The amount of activity prior to the announcement has certainly generated some interest,” said Ioan Smith, a strategist at Knight Capital Europe Ltd. in London. “I’m sure those that got involved will be able to afford more than a few tins of baked beans today!”

Bullish options trading surged to 12,580 contracts today, with January $60 calls changing hands the most, data compiled by Bloomberg show. That compared with 11,004 puts, which confer the right to sell shares.

Speculative Positions

Some traders may have started taking speculative positions, using longer-term options, last year in anticipation of a deal, according to Gareth Ryan, the managing director at London-based IUR Capital Ltd., which specializes in options strategies.

All four most-owned Heinz contracts will expire in January of next year. The $60 calls and $75 calls had the largest open interest, with a total of 14,999 and 14,141 options outstanding respectively, according to data compiled by Bloomberg.

“Most likely someone caught wind that Berkshire was talking to the Heinz management, and they didn’t know if something was going to happen,” IUR Capital’s Ryan said in a phone interview. “That’s normally what happens: someone gets wind of talks, they don’t know when things are going to happen, so they pay for a longer time value.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE