Ever wonder how much money those large call buyers make on their “special” knowledge of company happenings? Well, here’s an example of just how lucrative “inside trading” can be for these guys, using FireEye Inc, (FEYE).
On August 22 one trader bought 3,752 ( a nice round number right?) of the FEYE September $28.50 calls. The stock was trading at $28 at the time. We don’t have the exact price they paid for all these contracts but can assume based on the short duration and the stock price and the downward momentum of the stock at the time of the buy that they likely paid no more than $1.00 for those calls.
That traders “bet” had a transaction value of about $375,000, a sizeable amount for any options trade.
And now, just one week later, FireEye Inc, (FEYE) is trading at $32.37 up $1.23 or 4% for TODAY. It’s trading on higher than average volume of over 3.8 million shares by 10:30 am. FEYE has a 52 week high of $97.35, and a low of $25.58 on the year. That’s quite the trading range isn’t it? Clearly that trader knew something the rest of us didn’t on August 22.
Those same calls today are currently trading $4.00 bid, $4.80 ask, so that trader has a paper profit of 4 times their initial investment. That would be a profit of $1.125 million in just one week. Not a bad days work?
Interestingly, the only relevant news release since that call buy came out from Stifel Nicolaus on August 27, a firm well known by us when it comes to unusual options trades. They announced coverage, and surprise! a much higher price target of $45.00 compared to the current stock price. So it’s pretty clear why the trader bought all those calls just 3 business days before the Stifel Nicolaus coverage initiation news release. Of course, we are not saying the firm was involved in that big call buy!
Twenty Four analysts currently follow FireEye Inc (FEYE). The average rating on FEYE is a “Overweight” and the average price target is $44.00. FEYE is nowhere near profitable with no prospects of becoming profitable anytime in the future, with analysts expecting $0.55 per share loss for this quarter, and an annual loss of $2.14.
Obviously, this ship has sailed so don’t be jumping on the bandwagon now.