Thursday, September 2, 2010

Burger King (BKC) - Did Somebody Front Run the News?

BKC is trading $23.50, up 24.6% with IV30™ down 55.2%. The LIVEVOL™ Pro Summary is below.

The news, in case you don't know:
Burger King Holdings Inc., the nation's perennially No. 2 hamburger chain, said Thursday that it is selling itself to little-known private equity firm 3G Capital in a deal valued at $3.26 billion.

Its shares soared to an 18-month high.

Thursday's $24-per-share tender offer comes after a day of speculation about the deal that sent shares up more than 15 percent. The offer is a nearly 46 percent premium over the company's stock price before rumors of a buyout began circulating.

Jeff Kearns from Bloomberg did a story on the order flow before the announcement; interviewed me and Alec Levine from Wallach Beth. Jeff and Alec rightly pointed out some unusual call buying and growing OI in BKC before the news was out, and AFTER an earnings release. Alec illustrated that over 30,000 options were accumulated, which never happens in BKC.

The Livevol Pro Options Tab is included below (click to enlarge).

Note the large OI in the Sep 20 calls. This is what really got my attention. On 8-26-2010, 6,900 Sep 20 calls traded, pushing the OI from an already large 5,800, to over 11,000. What disturbed me mostly about this interest was the following:

1) The largest trade was 2,727 purchase for $0.30 on a $0.15 x $0.30 market three weeks before expo.
2) Earnings had passed, the stock was calm at around $17.

The big trade happened about 8 minutes after the open, so it feels sort of amateur rushed. Especially because the initiator payed up twice the bid. The 7,000 calls that traded represent more than 100% of the average daily total volume.

As of today the Sep 20 calls are worth $3.50 in parity, or 1,166% of the purchase price in a week. 3G Capital isn't a giant name in the private equity world; feels a little too lucky. Or, as I told Jeff at Bloomberg: "I don’t want to scream bloody murder, but it’s not normal."

This is trade analysis, not a recommendation.

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