Until this morning most traders believed MidAmerican’s $26.50 cash deal for Constellation (CEG) would close shortly. Shares were trading in a tight range near $25 for most of the past month and closed yesterday at $25.15. Options prices reflected this expectation by trading with virtually zero time value for out-of-the money contracts (since conversion to cash leaves no price volatility once the deal has closed). In fact, the Dec 25 calls were quoted 15cent bid, 30cent offer for most of the day yesterday, until a seller appeared, posting a 20cent offer for 451 contracts on the Amex near the end of the day, and finding no buyers.

Eventually the seller managed to find a buyer for the trade, with 1776 contracts trading on the day, and 990 contracts printing for 20cents late on the Amex. Open interest grew by 1673 contracts, confirming this to be an opening sale, netting the seller a total of about $30,000 before commissions.

Unfortunately for the seller, EDF trumped MidAmerican’s bid overnight and shares this morning touched $30 before settling back to current levels near 28.40. The seller’s quick 30K is a paper loss of about $600,000.00, and provides a painful lesson about writing options for low premium levels.