I was sitting at my desk when someone said look at Dow Jones & Co. (NYSE: DJ). Murdoch's News Corp. (NYSE: NWS) just made a bid. A couple of keystrokes later I saw the stock was up about 50%. I then heard the comment everyone always makes... "I should have bought that one yesterday." Thanks, but a little too late.
But then I looked a little further and it seems like someone has.
A look at the open interest indicates that there are 4,518 contacts open on the September DJ 45 calls (DJII) and 3,464 options traded yesterday. In fact, I am showing there was no volume on that option strike since February 1, and then yesterday there was suddenly 3,464 contracts traded and today the stock is up 50%. Interesting.
Those 3,464 contracts were traded at 35 cents or less. Each option contract represents an interest in 100 shares of stock. So if they were bought, that is a $121,240 bet the stock was going to go up. The stock is trading in the area of $55 so that means those 45 calls are worth over $10 each. I don't know about you, but $0.35 to $10 literally overnight looks like a nice return to me. Too good to be true. That $121,240 investment is now worth $3.4 million. If that 3,200% rate of return isn't good enough, check out the 5,000% on the June 40 calls. There were 641 contracts of June 40 calls (DJFH) bought at 0.30 for $19,230 yesterday which turned into $961,500 overnight.
