Schaeffer's Trading Floor Blog

Well-Timed Time Warner Cable Inc (TWC) Bets?

TWC shares rallied into the close ahead of Wednesday night's merger announcement

by 2/14/2014 7:33 AM
Stocks quoted in this article:

Did someone's bunny have a good nose in Time Warner Cable Inc (NYSE:TWC) on Wednesday ahead of the Comcast Corporation (NASDAQ:CMCSA) deal? Chris Ciaccia on highlighted some interesting action near the bell:

Now that the Comcast, Time Warner Cable deal is officially announced, let me bring to light something a little fishy about stock movement prior to the announcement.

Yesterday was a largely quiet day for equity markets, with the Dow falling 30 points, the Nasdaq gaining 10, and the S&P 500 falling 0.49 points. Not exactly gangbusters stuff.

However, at around 3:55 p.m. EST, the share price of Time Warner Cable started to move sharply higher, gaining about 50 cents in the last few minutes of trading. Normally, no one would think twice about that kind of price action, except if something major was going to happen.

Like he says, you wouldn't think twice about a move like that late in the day. Simple market-on-close orders jigger around final prints everywhere all the time. The difference is stocks don't usually then gap $10 in the direction of the move, so you do have to wonder.

Not sure if any unusual options trades went up near the bell, but if there was any options speculation in recent days, they hid it well. Implied volatility has trended lower and lower.

Chart of Time Warner Cable Inc (TWC) Schaeffer's Volatility index

And there hasn't exactly been a rush into call options

 Chart of Time Warner Cable Inc (TWC) put call volume ratio

If anything, it is tilted slightly more towards puts.

The open interested is concentrated in calls, but at strikes near the money before the move, not formerly out-of-the-money strikes which is where you tend to see smart money taking cheap shots.

The day after January expiration, total call open interest rose 17,000, and put open interest declined 29,000. But since then, put open interest has increased faster than call open interest, by 29,000 versus 24,000.

Given the whole picture, it seems likely they kept word of the merger relatively quiet until the very end. Those very late stock buys do look very suspicious, and I'm guessing there were some odd call buys thrown into the mix as well.

If past history is any guide, we should find out the results of the SEC's investigation in about 2027.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

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