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CBS Corporation : Too-Perfect Timing? CBS Options Trading Nets Big Gains With Spinoff

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01/17/2013 | 11:01pm CEST

--Options prices soar with news of CBS spinoff

--Well-timed bets look set to pull in big gains as CBS shares surge

--One CBS options trade is ready to pull in $6.5 million in profit

 
   By Kaitlyn Kiernan 
 

NEW YORK--Big gains in CBS Corp. (CBS, CBSA) options raised eyebrows Thursday--a number of trades looked strikingly well timed, as the stock jumped on news the TV company is spinning off some assets.

CBS options have seen a surge of activity over the past six sessions, with the number of outstanding bullish positions increasing 58%. Thursday, those new positions were on track to gain as much as 1,650%.

"It's an interesting time period when the trades occurred," said Brian Overby, senior options analyst at online brokerage TradeKing. "It appears some people might have known about what was going and got into options in front of the news."

A spokeswoman for the Securities and Exchange Commission declined to comment.

CBS shares rose $3.01, or 7.9%, to $40.95 Thursday, on track to notch their biggest percentage-point gain in 17 months. The shares surged after the company said late Wednesday it will convert its North and South American outdoor-advertising business into a real-estate investment trust and put its European and Asian businesses up for sale.

CBS Outdoor--which operates billboards and ads that appear in bus and subway stations--is one of the top outdoor-advertising companies in the world. The business accounts for about 13% of CBS's revenue but a lower portion of its profit.

Options investors began piling into bullish bets Jan. 9, when an investor set up a big position looking for shares to rise at least 5.1% over the next month. That led to more bullish bets: In the next six sessions, the number of bullish positions outstanding increased by more than 94,000 contracts, to 257,555 contracts overall. That is the highest number of bullish bets outstanding in at least six years, according to options-data firm Trade Alert.

"The trading was spread out but occurred in a few major pieces," said Henry Schwartz, president at Trade Alert. "It was so one-direction and so consistent that it is hard to believe investors hadn't been aware of the coming news."

The new trades in "call" options--which grant the right to buy 100 shares of stock at a set price through a designated date--are liable to reap profits that far exceed the share-price rise of 7.9% Thursday.

One investor Wednesday bought a block of 500 January $39 call options for 20 cents a share, spending $10,000 for the right to buy 50,000 CBS shares at $39 apiece. Thursday, those options were priced as high as $3.50 a share. If the investor sold the options to close the position, he or she could walk away with $165,000 in gains--or 16.5 times the amount invested.

CBS shares finished at $37.94 Wednesday.

Meanwhile, the largest single trade over the past week could bring in nearly $6.5 million.

An investor Monday bought a block of 35,000 February $40 calls for 85 cents a share, for a total initial cost of nearly $3 million. But with a price of $2.70 recently for each contract, that investor could exit from the position with a 218% profit. Data show the investor hadn't yet closed the February $40 call position.

"This trade was not only bullish ahead of the news, but the fact that there is no sign of the trader taking profits might suggest the trader thinks there can be more upside to come," said TradeKing's Mr. Overby.

Speculation that CBS was open to a sale of the outdoor business has circulated for months. Last June, The Wall Street Journal reported bankers were gauging interest in the business after CBS Chief Executive Leslie Moonves had noted the operation wasn't a core business.

Trading in CBS options averaged nearly 27,000 call options daily over the past six sessions, according to Trade Alert data. That compares with an average of just 1,530 over the prior month.

-John Jannarone contributed to this article.

Write to Kaitlyn Kiernan at [email protected]

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Financials ($)
Sales 2017 13 395 M
EBIT 2017 2 989 M
Net income 2017 1 279 M
Debt 2017 9 191 M
Yield 2017 1,20%
P/E ratio 2017 17,49
P/E ratio 2018 11,90
EV / Sales 2017 2,73x
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Average target price 73,9 $
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Leslie Moonves Chairman, President & Chief Executive Officer
Joseph R. Ianniello Chief Operating Officer
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