Someone Loaded Up on Bullish Teco Options Before Takeover

Updated on
  • Almost 37,000 Teco call options changed hands on Sept. 1
  • Trading profits could have totaled $11 million in just days

Days before a takeover offer drove Teco Energy Inc.’s shares higher, somebody made a huge bet in the options market that a rally was imminent.

Shares of the Tampa, Florida-based utility holding company surged 25 percent to $26.34 on Tuesday and the out-of-the money call option, a bet that the stock would rise to $22.50 by November, appreciated by more than 435 percent. Almost 37,000 of the contracts changed hands on Sept. 1, compared with an August daily average of 61.

Options convey the right to purchase shares in the future and often trade at a fraction of the price of the stock, making them leveraged bets that can pay out many times more than equities in events such as takeovers.

"The timing is odd. There is no question," Joe "JJ" Kinahan, chief strategist at TD Ameritrade Holding Corp., said in a phone interview. "It could have been something to protect a stock position. You never know why someone has made a trade."

In the case of the Teco option, 35,273 of the 36,767 lots in the November $22.50 calls that traded Sept. 1 changed hands in a single minute: 2:07 p.m. in New York. Thirty-six trades at a volume-weighted average price of 68.5 cents crossed.

Buying that many options at that price would’ve cost $2.4 million. A week later, after the rally following the takeover, the same collection of contracts would’ve been worth $13.2 million -- almost an $11 million profit.

Sylvia Vega, spokeswoman for Teco, didn’t immediately return a call and an e-mail seeking comment on the options trading. The surge in volume was reported earlier by the Wall Street Journal.