Wachovia pre-results option trades raise eyebrows

CHICAGO (Reuters) - Investors appeared to have made bearish bets on Wachovia Corp before the bank reported an unexpected quarterly loss on Monday, prompting questions among option traders on whether the news was leaked ahead of time.

Wachovia posted a surprise first-quarter loss early on Monday. The No. 4 U.S. bank said it would cut its dividend, eliminate jobs and raise $7 billion of capital after being hurt by credit conditions. Its shares fell 8.13 percent to $25.55.

But ahead of the earnings announcement -- originally scheduled for April 18 before being moved up over the weekend -- some lucky players aggressively scooped up Wachovia put options late last week.

The put trading was extremely heavy on Friday as traders appeared to be speculating on a bearish event affecting earnings, said Jon Najarian, a founder of Web information site optionmonster.com in Chicago.

A large part of that put activity involved May option contracts, allowing investors to sell Wachovia shares at $30 minus the premium paid.

"It does look suspicious just because the trading in the Wachovia $30 strike puts was so aggressive and so concentrated in the trading session immediately preceding their surprise first quarter loss," said Henry Schwartz, president of Trade Alert, an option analytics firm

In this case, it is an interesting trade considering that the stock was flat on Friday, he added. The shares closed at

$27.81.

The U.S. Securities and Exchange commission declined to comment on the unusual option trading.