Well-timed bullish options bet in Shaw Group raises eyebrows

Mon Jul 30, 2012 10:12pm IST

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* Large out-of-the-money bullish options bet placed last week

* Shaw Group shares jump more than 50 pct on M&A news

By Angela Moon

NEW YORK, July 30 (Reuters) - With Shaw Group Inc shares up more than 50 percent on Monday, one investor made a stunning return by placing some well-timed bullish bets in options last week, raising eyebrows among options market watchers.

According to several options market participants, one investor purchased 2,000 Aug $29 calls in Shaw Group for 25 cents a piece on Thursday. With Shaw shares hitting all-time high near $44 on Monday, the calls were worth about $14, a stunning 5,600 percent return for the investor.

"The timing of this does look rather suspicious and the fact someone bought some out-of-the-money calls at the Aug 29-strike, which is 12 percent out-of-the-money, only adds to the suspicion," said Ryan Detrick, senior analyst at Schaeffer's Investment Research in Cincinnati, Ohio.

Chicago Bridge & Iron Co said on Monday that it would buy Shaw Group for about $3 billion in cash and stock to create a big engineering and construction company focused on the energy industry. Netherlands-based CB&I offered $46 per share - $41 in cash and $5 in stock - a premium of 72 percent to Shaw's closing price on Friday, the companies said.

Shaw Group stock jumped about 60 percent to $43.70, while CB&I fell 14.9 percent to $34.67.

"Insider trading? Maybe. Certainly very shrewd timing on the purchase, wouldn't you say?" said Jon Najarian, co-founder of OptionMonster.com.

Suspicious trades prior to merger announcements are not uncommon in the options market. Just last week, a number of large well-timed bullish bets in the options of Canadian oil producer Nexen Inc were spotted, ahead of a takeover deal announcement.

The U.S. Securities and Exchange Commission has now accused a Hong Kong-based firm of insider trading ahead of the public disclosure that China's oil producer CNOOC plans to acquire Nexen.

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