Friday, December 10, 2010

Great A&P Tea Company (GAP) - Order Flow Before Bankruptcy... Did Someone Know?

GAP is trading $1.00, down 64.7% with IV30™ up 66.5% on bankruptcy news. The LIVEVOL™ Pro Summary is below.

First, the news:
Shares of Great Atlantic & Pacific Tea Co., parent of the money-losing A&P supermarket chain, plunged 62% to $1.08 in Friday morning trading. Bloomberg reported the New Jersey-based supermarket operator may soon file for bankruptcy.
Source: MarketWatch

The excitement stems from the highly unusual and active order flow yesterday with the stock trading in the $2.80 range. The company averages ~2,000 contracts traded a day, and yesterday nearly 38,000 traded. The pop-out from the Charts Tab is included below - this is the easiest way to find summary order flow stats in LVP.

I also have included the days largest options trades (I found this by clicking on the volume bars for that day on the Charts Tab - the very bottom).

In total, 10,967 Jan 1 puts traded and 3,235 Feb 1 puts traded. Additionally, 3,035 Jan 0.5 puts traded... Hello? 0.5 puts?...

The trading though, isn't quite as clean as we might think here. Here are some details.

Jan 1 Puts:
OI was: 12,011
OI is now: 10,068

So the interest went down. I tried to find if that existing interest was long or short, and my best guess is that it was long from the trades that happened on 10-18-2010 and 12-7-2010.

So, in English, the long put positions actually net closed a little bit yesterday (there was more selling of puts than buying).

Feb 1 puts:
OI was: 2,537
OI is: 3,271

So interest went up. I believe those puts were bought yesterday.

The Options Tab from today is included below. You can see the OI as well.

So what first seemed to scream, CHEATER!!!, doesn't necessarily anymore. I also don't know if the 0.5 puts were long or short.  In my opinion, someone may in fact have known something, and was able to trade through a negotiation (many of the Jan 1 and Feb 1 puts traded through a broker). The brokers may have found the people with the other side of the position.

Keep in mind Jan 1 put OI went down 2,000 though volume was 10,000. So, 6,000 were short and 4,000 were long. I believe the 4,000 long could have been in the know (this is a guess).

Similarly for the Feb 1 puts. With 3,200 trading, and OI increasing by ~800, it looks like 2,000 were bought and 1,200 were sold (this is also a guess).

Net, net, the volume seems too high yesterday to simply excuse as randomly unusual, given the bankruptcy news immediately following (i.e. today BMO). I'll let you guys decide which side you fall on...

This is trade analysis, not a recommendation.

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  1. I have no idea. I guess I wouldn't want to own a bankruptcy...

  2. Have 3000 GAP @2.83 , current loss 6K, should I wait for Monday? Or sell right away, gr8 if can get advice, donna how bankruptcy works

  3. I can't give advice, sorry. It's against the rules :-(

  4. Thanks OG, but can you advice Whether or not below circuit reached for GAP today?

  5. Sorry, question is:::::why GAP stable at$1.0 , is it because Today it has triggered it,s lower circuit which restricts further sell off?

  6. That I don't know. Bankruptcy stocks don't necessarily go to $0 immediately. GM is still trading on the pink sheets.

    Owning a stock is generally b/c you believe in the company's prospects moving forward. Ask yourself if you feel that way about GAP. If so, then you're an owner. If not, then you're not.

    Don't look back at the price afterwards (whatever your decision is), spend your time looking/analyzing the next trade.