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VIDEOTakeover Talk Drives Options Action
Textron, Biogen get driven up; Atwood, Sun get taken down.
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Options Action
Here are some names that are seeing some above-average volume or notable trading activity.
Shares of Textron (TXT) are up another 6% today and have gained over 40% to $8.80 in the past 5 trading sessions. There's persistent takeover talk of the maker of corporate jets and Bell helicopters. Likely suitors being named include Lockheed-Martin (LMT), Raytheon (RTN) and United Technologies (UTX).
The focus on Textron option activity resides in the April $9 and $10 call and the May $12.50 call. All have seen open interest more than double over the past 3 days, and today, each strike again has volume exceeding that open interest. This company has been hammered, as its finance division -- which it's trying to shed -- has wrought havoc to its balance sheet and risk profile. For a larger integrated aerospace firm, this could be a strategic fit at a bargain price.
Biogen Idec (BIIB) is also up sharply on takeover rumors; Sanofi-Adventis (SNY) is the potential acquirer. The drug/biotech sector had been the sector seeing the most takeover action, both realized and rumored. But a recent poor earnings report from Celgene (CELG) seemed to take the starch out of the group.
But today the traders are back in force as Biogen options traded over 10 times their daily average and equal to nearly 40% of the prior open interest. While much of the volume is taking the form of spreads, they're decidedly bullish, with transactions taking place at the bid price and implied volatility ticking up 5%. The most active strike is the April $55 call, which has traded over 20,000 contracts against prior open interest of 14,000. Also notable is the
May $60 call, which has traded 7,900 contracts against prior open interest of just 2,153 contracts. Atwood (ATW) is also hearing takeover chatter, but the option action doesn’t seem to be buying into it. While call volume is running 5 times the daily average, most of it has been spreads done at the mid-price - suggesting traders are skeptical, or don’t anticipate any large premium. Tidewater (TDW) is being named as the potential buyer.
The recent demise of the IBM (IBM) purchase of Sun Microsystems (JAVA) is causing massive repositioning; out with the April $9 and $10 calls and back into the May $7 and $8 strikes. But the biggest shift is the sudden demand for puts. The most active strike is the May $5 put, which has traded over 35,000 contracts against prior open interest of just 6,679 contracts. Implied volatility has also done a dipsy-do, dropping from a peak of 150% down to around 75% and back into the 140% level today..
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