Lexmark shares up on takeover talk and earnings

CHICAGO (Reuters) - Shares in computer printer maker Lexmark International Inc (LXK.N) rose nearly 7 percent on Wednesday and its options volume surged, fueled by optimism about the company's upcoming quarterly earnings and renewed takeover speculation.

Shares of Lexmark, based in Lexington, Kentucky, gained $2.74 to close at $43.80 on the New York Stock Exchange after earlier hitting an intraday high of $44.15. The company is due to report third-quarter results on October 23.

In all, 26,192 calls compared to 2,281 puts, traded in Lexmark, 12 times the normal volume, according to market research firm Track Data.

Jon Najarian, co-founder of Web information site optionmonster.com in Chicago, said that in addition to bullishness about the company's earnings prospects, a rumor that Dell Inc (DELL.O) founder and Chief Executive Michael Dell might be looking at the company, was circulating.

A Lexmark spokesman said the company does not comment on rumors or speculation. A spokesman for Dell, the world's No. 2 personal computer maker, also said it does not comment on speculation.

Investors focused on the October, November and January calls, giving them the right to buy Lexmark shares at $45 a piece, option analysts said.

Option players typically use equity calls, which allow them to buy the company's shares at a given price and time, to speculate on further strength in the stock.

"We have seen buying in the October, November and January calls at the $45 strike as investors position themselves for upside share price movement," said Rebecca Engmann Darst, equity options analyst at Interactive Brokers Group.

She noted the strong call interest could be due to positioning ahead of earnings and the return of takeover rumors that surrounded Lexmark as recently as June.

"The November $45 calls are the most interesting to us as they give the owners 38 days rather than just 10 days to be right" if the takeover speculation leads to a deal, Najarian said. October calls expire on October 19.

The November calls, which had volume of 8,600 contracts, cost $2.30 a contract, up $1.55 on the day.

The flurry of options activity was accompanied by a rise in Lexmark's overall option implied volatility, which measures the expected magnitude of share movement based on options prices.

It stood at around 47.8 percent, up from 38.8 percent on Tuesday, Darst said.

Both Paul Foster, options strategist at Web site theflyonthewall.com, and Darst said the high volatility indicated option participants expected more price swings in the stock.

(Reporting by Doris Frankel, additional reporting by Franklin Paul)