Twice in the last two weeks, traders have used call options to get bullish exposure to a stock RIGHT before the stock was taken over. Tracking this insider trading activity, and then following into similar trades is the strategy we use at Cabot Options Trader and Jacob’s Private Circle. Let’s dive into this insider trading activity …
Two weeks ago, a trader bought 15,000 Iveric bio (ISEE) May 30 Calls for $2.08 – Stock at 29.
This call buy, along with stock strength, triggered a recommendation from me for a buy of the ISEE January 30/40 bull call spread for Jacob’s Private Circle members.
Then on Tuesday, April 25th, a trader bought 2,600 Iveric bio (ISEE) May 35 Calls for $1.15 – Stock at 31
And finally, this past Friday, RIGHT before the close of the market, a trader bought 3,500 Iveric bio (ISEE) May 36 Calls for $1.25 – Stock at 32.5. That trade late on a Friday was very suspect!
Fast forward to Monday morning and ISEE was bought out for 40 a share.
Jacob’s Private Circle members’ bull call spread that we purchased two weeks ago, should the takeover go through, will close for a profit of $667 per bull call spread purchased or a gain of 200%. Not too bad!
Next up on the insider trading playbook is ImmunoGen (IMGN).
On Monday of this week, a trader bought 6,000 ImmunoGen (IMGN) June 5 Calls for $1.80 – Stock at 5.50.
Then on Tuesday of this week, a trader bought another 6,000 ImmunoGen (IMGN) June 5 Calls for $1.60 – Stock at 5.40.
So, what followed?
ImmunoGen (IMGN) stock rose 100% on Wednesday following the release of positive drug data.
Those 12,000 IMGN June 5 calls that were bought for $1.70 (on average) opened Wednesday at $6, or a profit of $5.16 million in just two trading days. Not too shabby!
Stepping back, the tracking of unusual option activity is the key component of the Cabot Options Trader service and dates back to my time as a market maker on the floor of the Chicago Board of Options Exchange (CBOE). Seemingly, whenever brokers from Goldman Sachs or Morgan Stanley came running into my trading crowd buying millions of dollars of calls, inevitably news would break of an upgrade or takeover in the coming days.
And when I see similar activity these days, I make a note of these unusual trades, share them with subscribers of Cabot Options Trader, and put these stocks on my radar for potential new buys.
Then if the call buying continues, and I like the risk and reward in a trade I will send a detailed Trade Alert with my rationale for the trade as well as the potential risks and rewards.
And finally, while the hedge funds may or may not be trading on insider information, Jacob at home watching public trades and sharing with subscribers is not trading on insider information and is a strategy that has been wildly successful for subscribers to Cabot Options Trader and Jacob’s Private Circle for years.