This is Why We Look at Unusual Options Activity: Goldman Acquires GreenSky

Why do we trade unusual options activity? Put simply: because of the opportunity. Look no further than GreenSky (Ticker: GSKY) for a classic example.

In case you missed it, Goldman Sachs announced that it would purchase GreenSky, a fintech lender, for $2.2 billion this week. They are paying $12 per share for a stock that was—at the time—trading under $8 per share.

Yesterday, CNBC reported that ahead of the news, a trader bought 8,000 weekly $10 call options for roughly $0.05. That $40,000 “investment” was worth $1.6 million after news of the deal hit.

We flagged GSKY activity on September 9

With the stock trading at $8.53 on September 9, our Heat Seeker^® algorithm uncovered—and our trading analysts confirmed—unusual options activity in GreenSky. This activity, different and before the trades mentioned in the CNBC report, was a trader buying 2,200 December $10 calls for $0.59 to $0.70. This one trade was roughly 4x the size of the open interest in the option.

The trader paid less than $154,000 to establish the position. As of Friday’s closing price, the calls traded at $1.89, meaning that they had a market value of $415,800 or a profit of 170%. Not too bad for a week’s work.

Was this insider trading?

The SEC definition of insider trading is very nuanced. There has to be a duty to the company to keep it secret and a benefit provided to the individual that breached their duty.

Generally, if you heard two strangers talking in an elevator about an upcoming deal and decided to trade on it, that is not insider trading (note: this is not legal advice). However, if your friend provided you the information and you traded on it, then that is insider trading—even if you didn’t pay your friend for the information.

In this case, the SEC is undoubtedly going to investigate.

However, regardless of whether this person traded on inside information, using unusual options activity to find and place trades is not insider trading. That’s because the information you may use to establish the trade is public… it’s the orders of other market participants. And because it’s public, it is perfectly legal to place trades based on the information.

How can you learn to trade unusual options activity?

If you are interested in learning more about unusual options activity, then check out our Insider’s Guide to Trading Unusual Options Activity.

You can also check out our Unusual Option Activity Essential trade idea service, which will help you learn to trade this information in a live market environment. Get started for just $7.