Leap Wireless Call Options Traded Most Since 2012Inyoung Hwang and Whitney Kisling
Bullish options trading in Leap Wireless International Inc. reached the highest level since November prior to the announcement of its takeover by AT&T Inc.
About 6,700 calls changed hands yesterday on Leap, about 5.6 times the 20-day average, data compiled by Bloomberg show. After the close of exchanges, AT&T said it agreed to pay $15 a share in cash for the San Diego-based wireless services provider, an 88 percent premium over the closing price of $7.98.
Because options are bought and sold for fractions of the price of shares and amplify returns, they are often used to speculate on takeovers. American securities regulators policing insider trading have stepped up scrutiny of derivatives markets, most recently alleging on July 1 that a former Dow Chemical Co. executive and two others made illegal trades with stock and calls of Rohm & Hass Co. in 2008.
“Someone was very confident the stock was going to go up,” Stephen Solaka, who oversees about $75 million including options as co-founder of Belmont Capital Group in Los Angeles, said by telephone. “It’s fairly common prior to takeovers. That type of activity will show up in the options markets prior to an actual announcement.”
Greg Lund, a spokesman for Leap, and Brad Burns, a spokesman for Dallas-based AT&T, declined to comment. John Nester, a spokesman for the U.S. Securities and Exchange Commission, didn’t respond to after-hours phone calls and emails seeking comment.
Calls made up nine of the most-active Leap options yesterday. August $9 calls, with an exercise price 13 percent above the last close, were the most traded, followed by July $9 and October $8 calls, according to data compiled by Bloomberg.
About 1,318 calls with a strike price of $9 expiring on July 20 changed hands, compared with 10 contracts trading yesterday. The options surged 50 percent to 12 cents. The August $9 calls jumped 17 percent to 42 cents and the October $8 calls climbed 9.6 percent to $1.03.
“The July $9 calls definitely seemed to be a case of uneven information dissemination,” Joe Kunkle, founder of OptionsHawk.com, a Boston-based provider of options-market data and analytics, said in an e-mail. “It was clearly speculative action choosing the far out-of-the-money July $9 calls just one week from options expiration.”
AT&T, the second-largest U.S. wireless carrier, will pay about $1.2 billion for Leap, giving the company 5 million customers, more airwaves and a larger piece of the pay-as-you-go market. The shares more than doubled to as much as $17.78 in extended trading yesterday, reflecting the value of AT&T’s offer plus proceeds from the separate sale of spectrum in Chicago.