This tweet probably made one options trader $2.4 million
Akin OyedeleApr 1, 2015, 23:26 IST
ReutersIntel may be about to splurge $10 billion on Altera in what could be its biggest acquisition ever. The Wall Street Journal broke the news last week.
But as noted by Fortune's Stephen Gandel, Journal reporter Dana Mattioli teased the news on Twitter before there was a full article online.
And this one tweet from Mattioli may have been worth some big money to one trader.
According to Gandel, options activity in Altera shows that one trader made $2.4 million off that tweet.Gandel reports that at 3:33 p.m. ET on Friday, one trader bought options contracts worth about 300,000 shares of Altera with a strike price of $36 and a mid-April expiration. Gandel notes that the whole trade cost about $110,000. This means that when these options expired, the owner of one contract could purchase 100 shares of Altera at $36 no matter the market price. If shares move above this price by the expiration date, the value of the options will go up; otherwise, they will most likely expire worthless, and the buyer will lose his or her initial investment. At the time, Altera shares were trading at about $34 per share, so these options were considered "out of the money" and cost about $0.35 apiece. But after the Journal story broke, shares of Altera quickly spiked and closed near $44, bringing the price of each option to $8.50 and taking their collective value to $2.4 million. But given the speed of the trade, Gandel notes that it may not have been a fast-fingered trader but a computer program focused on M&A.Via Gandel:Dana Mattioli is one of WSJ's main M&A reporters. So if you're training a computer to catch M&A news first, you would probably train it to focus on her. And "is in talks" is also a pretty likely key phrase one might flag the software to recognize. So perhaps it's not that surprising that a computer would pick up this deal.Gandel notes that the practice is not illegal, but it has been widely controversial because of allegations that it gives some traders an unfair advantage based on speed and access to data.High-frequency trading was the subject of Michael Lewis' book "Flash Boys." Head over to Fortune for the full story »