How do activist investors typically build their positions?

How to answer

Activists build positions through multiple methods designed to accumulate shares efficiently while minimizing market impact and maintaining secrecy until the 13D filing: (1) open market purchases through multiple brokers using algorithmic trading (VWAP, TWAP) over weeks or months; (2) total return swaps (TRS) that provide economic exposure without triggering 13D disclosure until the swaps are converted to shares; (3) call options (long calls) that provide leveraged upside exposure; (4) block trades from institutions willing to sell large positions; and (5) private purchases from other hedge funds. The activist typically accumulates just below 5% using economic instruments (swaps, options) that do not count toward the 13D threshold, then converts to shares and files the 13D. SEC rules require disclosing derivative positions in the 13D but the initial accumulation below 5% provides a period of stealth.

Key idea: Algorithmic buying, swaps, and options build stealth positions below the 5% filing threshold.