AbbVie’s $8.7 Billion Acquisition of Cerevel Sparks Scrutiny Amid Unusual Options Trading Surge

AbbVie made the announcement after the market's closing, disclosing a purchase of Cerevel for approximately $8.7 billion.

Trading in Cerevel Therapeutics Holdings Inc (CERE.O) options saw an extraordinary surge, closely following an uptick in its stock price, just before AbbVie (ABBV.N) unveiled its multi-billion dollar acquisition of the drug developer on Wednesday.

AbbVie made the announcement after the market’s closing, disclosing a purchase of Cerevel for approximately $8.7 billion.

This strategic move aimed to offset declining revenue from their highly profitable arthritis drug, Humira, facing increased competition. Remarkably, this revelation came mere minutes after Reuters reported the impending deal.

In the preceding three sessions, Cerevel’s shares had already risen by an impressive 42%.

Following the announcement, the stock soared an additional 16%, reaching as high as $42.75, while AbbVie’s offer was priced at $45 per share.

Concurrently with the stock’s ascent, options trading experienced a significant uptick.

Call and put options, allowing investors to buy or sell shares at predetermined prices in the future, saw heightened activity. This was indicative of investors using these options for hedging or speculative purposes.

Cerevel’s options market, which typically averaged less than 320 contracts traded daily, witnessed an astounding 51,000 contracts changing hands across the last three sessions, based on Trade Alert data.

Matt Amberson, from options analytics firm ORATS, expressed suspicion, suggesting insider knowledge may have been a driving factor behind this unusual surge.

Requests for comments from the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority remained unanswered outside of regular business hours. Cerevel and AbbVie similarly refrained from responding to inquiries during this time.

Options trading began surging in conjunction with the stock’s ascent on December 4th, with traders purchasing short-term upside call options on Cerevel, betting on significant stock price increases within a brief period.

Notably, on that day, Cerevel options volume reached 6,500 contracts, including call options speculating on the stock surpassing $35 by mid-January, despite closing at $26 in the prior session.

Additionally, call options betting on the stock finishing above $25 by mid-December were among the most actively traded contracts on December 4th.

Wednesday’s dominant Cerevel options trades primarily involved put spreads, a combination of December put options providing protection against a drop in the stock price below $35.

While the motives behind these trades on Wednesday remain unclear, analysts suggested they could represent an attempt to safeguard recent gains or speculate on the stock’s price increase being short-lived.

Given the timing and the unusual nature of these options trades, regulatory bodies are likely to scrutinize them, as options activity preceding public deal announcements has previously attracted enforcement actions related to alleged insider trading.