Twitter Options Trades Ahead of Elon Musk Disclosure Raise Analysts’ Eyebrows

Some well-timed trades in the options on Twitter, in the days before Tesla CEO boss Elon Musk revealed a large stake in the social media company, are raising eyebrows among options analysts.

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 (roughly Rs. 3,700).

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 (roughly Rs. 3,300) 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 (roughly Rs. 3,300) calls for about $530,400 (roughly Rs. 4 crore), 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 (roughly Rs. 3,300) calls, which traded for an average price of $1.26 (roughly Rs. 100) on Thursday, changed hands at an average price of $6.92 (roughly Rs. 520) 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.

© Thomson Reuters 2022