Buyout Reports Send Shock Waves Through Hershey Co (HSY) Options Pits

Mondelez International Inc's (NASDAQ:MDLZ) buyout offer for Hershey Co (NYSE:HSY) has broad implications for options traders

Jun 30, 2016 at 12:10 PM
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Chocolate specialist Hershey Co (NYSE:HSY) has exploded higher after being halted earlier, thanks to reports Mondelez International Inc (MDLZ) has made an offer to buy the company -- marking the second major M&A story of the day. CNBC has since reported the deal could value HSY at $107 per share. At last check, HSY stock was up 18% at $114.58, and earlier hit a record high of $117.79. While HSY shareholders are cheering today's news, data from the major options exchanges suggests options traders likely have mixed feelings about the buyout reports. 

Specifically, Trade-Alert reveals HSY's August 100 call added the most open interest of any option during the past two weeks, with more than 3,100 positions added. However, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) suggests that most of these contracts were actually sold to open, meaning traders were betting on HSY holding below $100 over the next couple months. Suffice it to say, this is a bad day for these speculators. 

On the other hand, peak open interest for HSY options sits at the July 100 call, which holds roughly three times as many contracts as the next closest strike, with more than 20,000 in residence. Data from the major options exchanges indicates significant buy-to-open activity has taken place here. As such, these bullish speculators appear to have made a tremendously profitable wager. 

Outside the options pits, HSY short sellers are sure to be licking their wounds. In fact, short interest jumped by almost 38% during the last two reporting periods, and now 7.4 million shares are sold short -- the most in almost six years. 

Before today, Hershey Co (NYSE:HSY) had been edging higher over the past year. Specifically, at Wednesday's close of $97.14, HSY was up 8.5% year-over-year, though the shares were struggling to breakout of the high $90 region, even with prior M&A rumors

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