Jana Bought $4 Billion of Equity Protection as Volatility Waned

Aug 18, 2014 7:38 pm ET

Aug. 18 (Bloomberg) -- Barry Rosenstein’s Jana Partners LLC bought more than $4 billion worth of protection against declines in the equity market during the second quarter, taking advantage of relative calm to add cheap insurance.

Jana, which oversees about $10 billion, held put options on 11.8 million shares of the SPDR S&P 500 ETF Trust, an exchange- traded fund that represents all of the companies in the Standard & Poor’s 500 Index, according to a regulatory filing last week. The hedge-fund firm also had put options on 19 million shares of the Energy Select Sector SPDR Fund, which holds stakes in about 45 large oil and gas companies, including Exxon-Mobil Corp. and Baker Hughes Inc.

Jana, which is known for taking stakes in companies and then urging management to take steps designed to increase shareholder value, told investors in a letter summarizing its second quarter that it “took advantage of the collapse in volatility to purchase market protection.” Put options represent the right to sell a set amount of stock at a set price to another investor in the future and become more valuable as the price of the underlying security declines.

Charles Penner, a partner at the New York-based firm, declined to comment on the letter or the firm’s holdings.

The cost of protection fell toward the end of June, when the Chicago Board Options Exchange Volatility Index, also known as the fear gauge, hovered near its record low. The measure, which has increased 8 percent since June 30 to 12.5 as geopolitical tensions rose, is still below the average of about 20 over the past decade.

Market Value

The market value of the shares covered by Jana’s put options on the S&P 500 ETF totaled $2.3 billion as of June 30, while the underlying shares for its put options on the energy ETF had a market value of $1.9 billion, according to the Form 13F that Jana filed Aug. 14 with the U.S. Securities and Exchange Commission.

Jana held put options on about $93.5 million of the S&P 500 ETF at the end of March, and didn’t hold any options on the Energy ETF, according to its prior 13F filing.

The value given to options in a Form 13F typically reflects the market price of the underlying shares, not the market value of the options themselves.

Money managers that oversee at least $100 million of U.S.- traded equities, including options and convertible bonds, must disclose these holdings through a Form 13F that is due within 45 days of the end of the quarter.