Big bets on Green Mountain ahead of Coke stake raise eyebrows

Thu Feb 6, 2014 3:37pm EST
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By Angela Moon

NEW YORK (Reuters) - A surge in bets that shares of Green Mountain Coffee Roasters would rise sharply by the end of the week has raised suspicions, coming as it did just hours before news of a partnership deal with Coca-Cola (KO.N: Quote).

Green Mountain GMCR.O said late Wednesday Coca-Cola bought a 10 percent stake for $1.25 billion and would help launch Green Mountain's new cold-drink machine, planned for release as soon as October.

To be successful, many of the bets - call options conferring the right to buy Green Mountain shares at a specific price before midnight Friday - required the shares to rise to $90 or $95, roughly a 12 percent to 18 percent increase over two days.

The shares, which closed at $80.88 on Wednesday before the announcement, were up 26.5 percent at $102.29 on Thursday afternoon. Earlier they traded as high as $110.50.

"We noticed the out-of-the-money ones which were definitely a bit suspicious. To wait until the last minute before some sort of announcement to buy something that expires so soon, that does raise an eyebrow," said Ryan Detrick, senior analyst at Schaeffer's Investment Research in Cincinnati.

A call option with a "strike" price significantly higher than that of the underlying stock is described as being out of the money.

"It's safe to say that if they bought (the contracts) anytime yesterday, they easily made over 1,000 percent near the open today," Detrick said.

The total volume of call options, which generally convey bullish expectations for a stock, surged in Green Mountain on Wednesday, jumping to 53,681 contracts from a recent daily average of about 13,000 contracts, according to options analytics firm Trade Alert.   Continued...

Green Mountain Coffee single-serve K-Cups are pictured in New York, May 3, 2012. REUTERS/Brendan McDermid