Cerevel options trading surge before AbbVie deal news raises eyebrows

Cerevel Therapeutics Holdings

07/12/2023 03:27

By Saqib Iqbal Ahmed
       NEW YORK, Dec 6 (Reuters) - 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.

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GRAPHIC: Options surge    https://tmsnrt.rs/3uEYmMb
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 (Reporting by Saqib Iqbal Ahmed; additional reporting by Chris
Prentice and Michelle Price; Editing by Ira Iosebashvili and
Sonali Paul)
 ((saqib.ahmed@thomsonreuters.com; @SaqibReports; +1 332 219
1971; Reuters Messaging:
saqib.ahmed.thomsonreuters.com@reuters.net))