Heavy Option Purchase in Kate Spade prior to possible Company Sale

Before the Dow Jones had reported that Kate Spade & Company (NYSE: KATE) was exploring the sale of the company, one options trader had purchased almost 2,000 January 20th, 2017 expiration $16 strike Calls. The purchase of an average of $0.40 came minutes before the announcement that aired after 12:30 pm. This raised a red flag as it may indicate that someone with inside information took advantage of their knowledge of the announcement before it occurred.

Investing firm Caerus Investors had suggested that Kate Spade sell their business last month. “We are deeply concerned about the precipitous decline in the share price of Kate Spade over the last two and a half years brought about by management’s inability to meet their own stated goals,” Caerus stated in a letter.

Post announcement, Kate Spade shares were halted due to the quick surge in volatility which was followed by an additional halt shortly after where the company 15 percent higher Wednesday afternoon. Ike Boruchow, a Wells Fargo analyst claimed that Coach, Hanesbrands, Michael Kors, PVH and VF Corp are looking to make an acquisition. Boruchow also claimed that Kate Spade’s valuation is “compelling” since recent weak earnings reports have pushed share value south.

“We know that both Coach and Michael Kors each have cash and want to make a purchase of another brand,” said Dana Telsey of Telsey Advisory Group on CNBC Wednesday. A spokeswoman from Kate Spade had declined to comment on the buyout rumors but stated, “As a company policy, we do not comment on industry rumors or speculation.”  Representatives from Coach and Michael Kors also reiterated that they do not comment on rumors or speculation as well.

The Securities and Exchange Commission (SEC) had declined to comment on whether or not they will pursue the investigation on the heavy options purchase prior to the announcement. 

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