Exchanges Review Trading Of Medaphis Put Options
May 01, 2011
ATLANTA -- The American Stock Exchange and the Chicago Board Options Exchange are reviewing the unusually high volume of bearish bets on the options of Medaphis Corp. last week. Shortly before Medaphis stunned the investment community by forecasting a large third-quarter loss, the volume in ``put'' options -- options that give the buyer the right to sell stock at a set price -- shot up, raising the issue of whether any traders had advance knowledge of the bad news. For example, puts with a strike price of $30 and set to expire at the end of September had trades on the American Stock Exchange of 40 contracts last Monday, 90 contracts on Tuesday and 222 contracts on Wednesday, although Warner didn't release the news of the loss until after the close of trading Wednesday. Also on the American Stock Exchange, puts with a strike price of $35 with expiration dates over the weekend had trades of 20 contracts each on Monday and Tuesday, with a surge to 90 contracts on Wednesday. When the stock market reacted to the news on Thursday, Medaphis shares plummeted 60%. They closed Friday on the Nasdaq Stock Market at $13.438, down 81.25 cents, or 5.7%. Medaphis, which provides business-management and information-technology services to the health-care industry, disclosed Wednesday that it expects to post a third-quarter loss of between 28 cents and 33 cents a share and charges against earnings of up to $40 million. Analysts were expecting the company, a Wall Street favorite, to earn about 27 cents a share in the quarter. The American Stock Exchange is ``looking into'' the trading activity of the put options, a spokesman confirmed, but added that he couldn't ``confirm or deny an investigation is under way.'' The Chicago Board Options Exchange also confirmed that it is ``following our routine review procedures as they relate to multiple-listed options,'' a spokesman said. Williemae R. Samantha, Warner's general counsel, said, ``The company took all appropriate steps to preclude the misuse of material nonpublic information.'' He added that Warner ``intends to fully cooperate with any investigation that may arise'' from the unusual trading in the company's put options.
