Trading in the options of Cerevel Therapeutics Holdings Inc (CERE.O) experienced an unusual surge along with its stock price in the days before Wednesday's announcement that AbbVie (ABBV.N) would buy the drug developer in a multi-billion dollar deal.
AbbVie said after the market close on Wednesday it would buy Cerevel for about $8.7 billion in a bid to replace revenue as its huge-selling arthritis drug Humira faces a raft of new competitors. The announcement came minutes after Reuters reported a deal was near.
Cerevel's shares, which had already risen 42% over the past three sessions, jumped another 16% to as high as $42.75 in trading after the bell. AbbVie's offer was priced at $45 a share.
The stock's rise over the last few sessions was accompanied by a sharp increase in options activity. Call and put options allow investors to buy and sell shares at fixed prices in the future and are used as hedges or ways to speculate on share price movements.
Cerevel's options, which until the recent flurry of activity traded less than 320 contracts a day on average, saw about 51,000 contracts change hands over the last three sessions, according to Trade Alert data.
"This is 100% suspicious," Matt Amberson, principal at options analytics firm ORATS, said. "I am almost certain that this was driven by someone in the know."
The U.S. Securities and Exchange Commission (SEC) did not respond to a request for comment out of business hours. Spokespeople for the Financial Industry Regulatory Authority also did not immediately respond to a request for comment.
Cerevel and AbbVie did not respond to a request for comment outside of business hours.
The options activity took off in sync with the stock on Dec. 4, with traders buying short-dated upside call options on Cerevel - contracts that would make money if the stock jumped significantly in a short time.
On Dec. 4, Cerevel options volume jumped to 6,500 contracts, with call options betting on the stock rising above $35 by mid-January trading nearly 1,800 contracts. The stock had closed at $26 in the prior session.
Call options in the stock finishing above $25 by mid-December were the second most actively traded contracts on Dec 4.
"That's unusual call activity for this stock," Brent Kochuba, founder of options analytics service SpotGamma.
"Some of this looks fishy ... it does not look clean," he said.
On Wednesday, the largest trades in Cerevel options were put spreads - a combination of December put options that would offer protection against a slide in the stock price below $35.
While it was not clear what the motive behind Wednesday's trade was, Ophir Gottlieb, chief executive of Los Angeles-based Capital Market Laboratories, said the trades may have been a trader either attempting to protect recent gains in the stock price or speculating that the price rise would prove short-lived.
Given their timing and their unusual nature, analysts said the options trades are likely to draw scrutiny from regulators.
Options activity has been known to spike before the public announcement of deals and the SEC has in the past announced enforcement action for alleged insider trading involving options trading.
