In the hours before investors learned that Imperial Holdings was the target of a federal investigation, investors made a large number of bets that the company’s stock would plunge.
Volume for puts to sell shares – a bet that the stock price would fall – totaled 1,948 on Tuesday. That was 85 times the daily average since the options were listed on exchanges in February, Bloomberg News reports today.
Call volume was 35 times the normal activity. The most active options were October $5 puts, which accounted for more than half of all volume. Those contracts, which had never traded before that day, changed hands in blocks as large as 80, Bloomberg reported.
The options trading began at 11:25 a.m. Tuesday, Bloomberg said. The New York Stock Exchange halted trading of Imperial Holding (NYSE: IFT) at 1:42 p.m.
Investors learned that FBI agents had raided the company’s Boca headquarters at 2:26 p.m., when The Palm Beach Post reported the raid.
The spike in options activity raised eyebrows.
“This feels like a trade with prior knowledge of a news event, or extraordinarily good timing,” Ophir Gottlieb, managing director of client services at San Francisco-based Livevol Inc., told Bloomberg.
Imperial is a specialty finance firm that finances insurance premiums, buys life insurance policies from policyholders and buys structured settlements from plaintiffs in lawsuits.
Chief Executive Antony Mitchell, 45, and Chief Operating Officer Jonathan Neuman, 38, are among the Imperial Holdings employees “under investigation in the District of New Hampshire” in connection with the company’s life-finance business, the company said in a statement.
Imperial Holdings shares fell 65 percent Wednesday and have jumped 23 percent today.