August 19, 2010 / 7:53 PM / 9 years ago

Possible takeover targets lure options investors

CHICAGO (Reuters) - Mega-deal activity in equities markets this week has spurred speculation of what companies might be the next takeover candidates, resulting in unusually large volume in the U.S. options market for several stocks, including Symantec Corp SYMC.O and U.S. Steel.

In the latest acquisition deal, Intel Corp (INTC.O) offered to buy security software maker McAfee Inc MFE.N for about $7.68 billion.

“We are seeing call buyers in different technology stocks today, much of it is fueled by the Intel-McAfee news this morning. Speculators are looking for any stock that may be deal related,” said TD Ameritrade chief derivatives strategist Joe Kinahan.

Intel’s deal followed an announcement this week of a takeover bid for the world’s largest fertilizer supplier.

Canada’s Potash Corp POT.TO on Tuesday rejected an unsolicited $39 billion offer by BHP Billiton (BHP.AX)BLT.L the world’s biggest miner.

The M&A activity has prompted a surge in option trading, notably calls, in possible takeover stocks.

Unusual buying of equity calls — which give the right to buy shares at a fixed price up to a certain date — often occurs in anticipation of news that would drive the price of a stock higher, such as a potential takeover.

Traders saw a pickup in call option activity in U.S. Steel (X.N) on Wednesday.

Investors on Thursday flocked to bullish options on security software specialist Symantec Corp SYMC.O and Internet content delivery company Akamai Technologies Inc (AKAM.O).

Symantec rose 6.35 percent to $13.39 while Akamai shares were up 2.5 percent to $45.15 in afternoon trade.

“Investors are anxious to find the next company that will be taken over after the latest M&A activity this week,” said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York.

“Symantec is a logical choice for a potential takeover since it is a company within the same industry. As a result, investors are buying their shares as well as the call options on the stock,” Lefkowitz said.

McAfee shares surged 57.06 percent to $47.01, while Intel slipped 3.16 percent to $18.97.

By 3:13 p.m. EDT, option investors had exchanged about 43,000 contracts in Symantec, led by the trading of 33,000 calls, or 4.2 times the combined average daily volume, according to options analytics firm Trade Alert.

“We are seeing new buying in the October $14 and $15 calls, maybe on the view that Symantec could be an acquisition target after the proposed buyout of McAfee,” said options strategist Frederic Ruffy at WhatsTrading.com.

Ruffy noted that some of the call activity in Symantec was in the August contracts, as investors are likely closing their positions ahead of Friday’s August options expiration.

“However, most of the activity is in the September and October call options, with investors taking new positions,” he said.

In Akamai, options volume was 2.7 times greater than normal with 50,000 calls and 9,441 puts traded by late afternoon, Trade Alert data showed.

“Investors gravitated to in- and out-of-the-money call options in Akamai on renewed takeover speculation today, which boosted its call volume,” said Caitlin Duffy, equity options analyst at Interactive Brokers Group. “Trading traffic is heaviest in the August and September contracts.”

Symantec and Akamai did not respond to requests for comment, and U.S. Steel declined to comment on the takeover talk in the markets.

Editing by Leslie Adler

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