Kraft Foods Group, Inc (KRFT) stock is trading around $81.80 this morning higher by over 33% on the news that the company will merge with global food manufacturer H. J. Heinz Company (HNZ). The merger has sent KRFT stock soaring but how could a trader have caught this move before the announcement?
One way to see announcements like this telegraphed in the options market is to watch for unusual options activity. Earlier this month, on March 10th to be exact, a trader put on a very large bullish options position in KRFT. On March 10th a trader bought 10,000 KRFT Jun 67.5 calls for $0.70. This trade hit the tape early in the morning and required this trader to lay out $700,000 in capital. At the highs today this position was worth nearly $16.1 million. IF a trader was able to spot this unusual options activity they would have been able to get in on the move ahead of the announcement.
Trade: Trader bought 10,000 KRFT Jun 67.5 calls for $0.70
Risk: $70 per 1 lot
If a trader would have bought a 50 lot of these calls for $0.70 they would have profited nearly $78,000 at the highs.