Trading in stock and options in Sprouts Farmers Market surged during trading last week prior to the report that the retailer specializing in natural foods was in merger talks, raising many questions about if the news of a deal had been leaked.
A report on Sunday said that the Albertsons the food retailer backed by Cerberus Capital had preliminary talks about a merger with Sprouts recently.
Shares of Sprouts were up 5% Monday morning, before retreating and closing down 1%.
The Monday swing in trading of shares of Sprouts comes after its stock price on both Thursday and Friday had surged and set a record in the trading of its options.
Both Albertsons and Sprouts representatives have not commented as to whether merger talks had been held.
Shares of Sprouts, which reached a low of 18 months March 7, shot upward by 11% last Thursday, with close to half of those gains taking place in just the final hour of trading.
Almost 9 million shares exchanged hands during the last hour of Thursday trading, making it the busiest one hour of trading in the past year.
As far as options, the final hour of trading had close to 15,000 contracts change hands, which was close to 14 times the average daily volume of trading for Sprouts, said analysts.
When Monday arrived, the amount of open call contracts for shares of Sprouts reached 31,688 which was a high of 16 months.
One chief investment officer in a Wall Street brokerage said that when open interest is increased so high it adds to the credence of questions about who knew what and when.
This is not a first for Sprouts, It has seen bullish call flow in large numbers before and with Whole Foods Market, a rival, having been mentioned as a possible candidate for a merger recently, it is likely traders had been on the lookout for signs of well-informed, unusually high call buying, added the CIO.
Nevertheless, the activity has given options traders a belief in a catalyst that is near term for shares of Sprouts.
One Wall Street analyst said it was not normal that because the shares price was up that people then would start getting into calls.
The sharp increase in the share price of Sprouts made for large gains for some option trades that were timely.
For instance, one trader bought over 400 calls on Thursday betting shares would move above $20 before April 21. Those calls were bought for 70 cents Thursday and traded on Monday for an average of $2.34.