To the surprise of absolutely no-one, the trading volume on TXU call options was unusually high in the couple of days before the deal was first leaked to CNBC. We’re not saying it’s right that some folks who might have had inside knowledge about the deal might have traded on that knowledge while the rest of the market was in the dark. But we are saying that it strikes us as not exactly very likely that the very first person to know about a deal outside of TXU and its private equity acquirers, KKR and the Texas Pacific Group, would be CNBC reporter David Faber.
From the Wall Street Journal:

In what has become a familiar occurrence, some stock and option investors seem to have caught wind of TXU’s sale before news of it became public late Friday.
Shares of the Texas utility rose 4.1% Friday, before the deal was reported by CNBC after the market close. Meanwhile, the volume of TXU call options, which give investors the right to buy the stock, surged to 18,000. That is compared with average daily volume this month of about 2,400 contracts. Yesterday — when the company officially confirmed reports of its planned sale to private-equity firms Texas Pacific Group and Kohlberg Kravis Roberts & Co. — the stock rose an additional $7.91 to $67.93.
Some market watchers cried foul about the moves. Jon Najarian, a trader who tracks unusual activity for optionMonster.com, argued that volumes Friday were high enough that “certainly this information was widely distributed to get this many people reacting to it.” Though some traders may have been anticipating the company’s earnings release due tomorrow, Mr. Najarian argued that probably doesn’t account for all of Friday’s activity.


Unusual Activity Precedes TXU Buyout
[$$} {Wall Street Journal]

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