Speculation mounts on TiVo, DISH settlement

* TiVo closes 9.7 pct higher on DISH speculation

* Investors snap up TiVo call options ahead of ruling

By Doris Frankel and Yinka Adegoke

CHICAGO/NEW YORK, Oct 23 (Reuters) - Investor expectation that TiVo Inc (TIVO.O) is close to reaching a settlement with DISH Network Corp (DISH.O) in their long-running patent dispute sent shares up nearly 10 percent and drove call option activity on Friday.

TiVo, which makes digital video recorders, could receive a significant payment from U.S. satellite TV provider DISH ahead of an appeals court hearing due on Nov 2.

TiVo is suing DISH and sister company EchoStar Corp (SATS.O) for patent infringement of its DVR technology.

Last month, a U.S. district court awarded TiVo nearly $200 million in damages, bringing the total it has received so far in the patent technology dispute to $400 million.

DISH has appealed the case, though the judge warned that the company, run by founder Charlie Ergen, could face enhanced sanctions.

TiVo shares closed up $1.11, or 9.7 percent, at $12.58 while about 45,000 call options traded in TiVo, 26 times its average daily volume and nearly 14 times the number of its put options, according to option analytics firm Trade Alert.

"Investors are positioning themselves ahead of the appeals case and speculating there will be some sort of settlement with DISH," said Todd Mitchell analyst at Kaufman Bros.

But Mitchell said it is unlikely that the judges would in fact give a decision on the case before January.

Investors expecting continued bullish movement in the shares have bought TiVo call options across multiple contracts, said Interactive Brokers Group equity options analyst Caitlin Duffy.

Calls grant investors the right to buy the company's shares at a fixed price within a specified time period.

"Some investors are hoping that some type of deal could be announced or a settlement could be reached regarding their litigation with Dish Network," said William Lefkowitz, options strategist at brokerage firm vFinance Investments. Lefkowitz said the expectation is TiVo will release some positive news shortly.

Near-term optimists paid an average of 86 cents in premium to purchase 6,500 calls at the November $12.50 strike, Interactive Brokers' Duffy said. More than 15,000 contracts changed hands at that strike, exceeding the existing positions held by investors by a factor of 3, indicating new positions were initiated just before the closing bell.