On Monday, Musk revealed a 9.2 percent
stake in Twitter, making him the biggest shareholder in the company, and
triggering a 26 percent rise in Twitter's shares to over $49 .
The news follows a flurry of bullish
trading in Twitter's options in recent days, including in call options betting
on Twitter shares rising above $43 by April 29, or up more than 10 percent,
which traded in noticeably large numbers.
"It certainly seems someone was aware
of Musk building a stake, which is information that would likely be readily
available across trading desks due to the significant size of the
position," said Joe Kunkle, founder of options analytics firm
OptionsHawk.com in Philadelphia.
The trades stood out since they were
betting on Twitter to advance sharply within a relatively short time frame,
Kunkle said.
For example, someone bought 3,900 of the
April $43 calls for about $530,400, just minutes before the end of the trading
session on Thursday. In all, 21,706 of these contracts changed hands on
Thursday, overnight making them the fourth-largest block of open contracts on
Twitter, according to Trade Alert data.
The contracts would also capture any share
price moves following Twitter's earnings results, expected on April 28.
With Twitter's share price jumping on
Monday, the trades stood to make big gains. For example, the April 29 $43
calls, which traded for an average price of $1.26 on Thursday, changed hands at
an average price of $6.92 on Monday, a gain of more than 400 percent, according
to a Reuters analysis of the trades.
Bullish options on Twitter have drawn
unusually heavy activity ever since Musk tweeted on March 25 that he was giving
"serious thought" to building a new social media platform, while
questioning Twitter's commitment to free speech, Matt Amberson, principal at
options analytics firm ORATS, said.
"I find it interesting that the calls
were bought in a big hurry, late in the day ahead of the end of the quarter. If
I was a regulator, I would be looking into these trades," said Steve
Sosnick, chief strategist at Interactive Brokers.
"It's not a smoking gun, but it
deserves scrutiny," he said.
The US Securities and Exchange Commission
(SEC) scans for unusual trades ahead of news announcements and has used such data
to bring insider trading probes in the past, public filings show.
The SEC did not immediately respond to a
request for comment on the trading in Twitter's options. Twitter and Tesla did
not immediately respond to a request for comment on the trading activity. © Reuters