The Timing Of This Schwab Call Purchase Raises Some Eyebrows

Charles Schwab Corporation SCHW shares rallied 7.8% on Thursday on reports that Schwab will be buying TD Ameritrade Holding Corp. AMTD. But while Schwab shareholders had a good day on Thursday, call buyers made a killing.

MarketRebellion co-founder Jon Najarian told Benzinga one particular set of Schwab call options were timed particularly well.

Just over a month ago, a large option trader bought Schwab call options with a $42 strike price and a Nov. 22 expiration date at a price of just 32 cents. Najarian said the timing of these trades and the Nov. 22 expiration date are extremely coincidental. The calls were purchased right before Schwab reported third-quarter earnings, but were they a pure earnings trade?

“They didn't buy the short dated calls they could have purchased,” Najarian said. “So they wanted a bit more time, not indicative of an earnings play, but certainly well-timed and positioned for today's takeover announcement of AMTD.”

Those calls opened Thursday at $8.00, 32 times their purchase price just over a month ago.

Benzinga’s Take

While properly reported insider trading can be perfectly legal, this type of insider trading potentially based on non-public merger information is exactly the type of unfair situation that regulators want to prevent.

However, the fact that the trader bought the calls over a month ago and timed the date of the future merger news so perfectly suggests it may simply be coincidence. Any time a major news item like a merger is announced, certain trades will appear suspiciously timed in hindsight, when in reality the traders simply got extraordinarily lucky.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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