Wednesday, September 28, 2011

Imperial Holdings (IFT) - Stock Falls 65%, Did Someone Know... Did Someone Cheat?

IFT is trading $2.27, down 64% with IV30™ up 110.9%. The LIVEVOL® Pro Summary is below.


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Imperial Holdings, Inc. (Imperial) is a specialty finance company with a focus on providing premium financing for individual life insurance policies issued by insurance companies and purchasing structured settlements backed by annuities issued by insurance companies or their affiliates.

Here's the news driving the stock price to the ground, provided by

[IFT] acknowledged late Tuesday it was served with a search warrant by the U.S. District Court of the Southern District of Florida, saying it fully cooperated with the exercise of the warrant.

Imperial further disclosed that both the company and certain employees, including its chairman and CEO Antony Mitchell, are being investigated by the District of New Hampshire, and that the probe relates to its life finance business.
Source: Imperial Holdings Sunk by Federal Probe, written by Michael Baron.

So, ok.. why does this matter?... How about this:

The company averages 34 puts traded a day with no single day greater than 125... ever... Until yesterday, when 1,948 puts traded. Specifically, the Oct 5, Nov 5 and Dec 5 puts traded 1,058, 422, and 210 times, respectively. That's 1,690 puts in the ATM strike. The Options Tab from the close of yesterday is included below.

Note the OI in those three lines (Dec isn't pictured): 0, 0, and... 0. Yup, zero open positions in any of those puts. The stock (and therefore options) halted midday, so the prices look crazy on close. Let's glance to the Options Tab today.

Of the 1,058 puts in the Oct 5 puts, it looks like 1,043 were purchases and 15 were sales (and thus 1,028 OI, today). The Dec 5 puts were entirely purchases, that's 210 bought, 0 (zero) sold. The Nov 5 puts look like all but ~50 were purchases. The prices paid in the Oct 5 puts were ~ $0.20. Those puts are worth ~$2.75 today. In English, that's ~1,000*100*($2.75 - $0.20) = $255,000 in a day in just those puts.

In an interesting article posted by the Palm Beach Post, we get a bit of the timing of the event:

Updated: 3:35 p.m. Tuesday, Sept. 27, 2011
Posted: 2:26 p.m. Tuesday, Sept. 27, 2011

BOCA RATON — FBI agents and Boca Raton police closed the offices of finance firm Imperial Holdings on Tuesday as they executed a search warrant.

On Tuesday afternoon, an empty U-Haul truck was backed up to the entrance of the company's headquarters at 701 Park of Commerce Blvd., apparently ready to be filled with documents.
Source: FBI, police raid Boca Raton financial firm, written by Jeff Ostrowski.

As for the company's reaction to the news, here's a quote from the Dow Jones story: "The specialty-finance company said the action came as a complete surprise and it fully cooperated with authorities."

The first wave of trades in IFT came at 11:32am EST. That seems a bit early... The halt was announced at ~1:32pm EST. Someone really had their ear(s) open to this enormous $133 million market cap company which averages 40 options traded a day and pounced, huh?... Or wait?...

This is trade analysis, not a recommendation.

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  1. News was out well before options were least in chat rooms, everyone heard about the Raid and jumped into the puts...