Allegheny Technologies Options Surge on Takeover Speculation
2007-11-09 14:48 (New York)
By Jeff Kearns
Nov. 9 (Bloomberg) -- Options traders increased their bets that Allegheny Technologies Inc., the Pittsburgh-based maker of specialty metals, will be acquired next week.
Call-option volume rose to 14,308 contracts, triple the 20-day average, as of 2:42 p.m. in New York. Those bullish bets outnumbered bearish ones, or puts, by 3-to-1. Allegheny shares advanced 4.5 percent, the most in two weeks, to $98.43.
"It's one of those takeover speculation names that's been mentioned in the past as a candidate," said Mike Capitani, head of equity trading at Caris & Co. in New York. "That's what's going on today."
Traders have been betting on takeovers of metal producers since BHP Billiton Ltd., the world's biggest mining company, said yesterday that it offered to buy rival Rio Tinto Group, Capitani said. Rio Tinto rejected the proposal.
Allegheny spokesman Dan Greenfield didn't immediately return a call for comment.
The price of today's most-active Allegheny contracts, which give the right to buy the stock for $100 before Nov. 17, more than tripled to $3. November $105 calls, the second-most active, surged to $1.40 from 30 cents.
Implied volatility, the key factor in determining the value of option contracts, rose to 56.70 percent, the highest since August. The increase indicates traders anticipate bigger swings in the stock price.
Volatility is Exploding
"As with any LBO or takeout chatter, volatility is exploding," said Mike Marino, an options trader at WJB Capital Group in New York. "It's all on the expectation that this stock could get taken out a lot higher."
Marino said those expectations are reflected in today's third-most active contracts, November $110 calls, which rose more than ninefold to 75 cents. The stock must gain 17 percent in a week from yesterday's closing price of $94.23 for those options to reach their strike price.
Calls give the right to buy a security for a certain amount, the strike price, by a given date. Puts convey the right to sell.
"The options activity indicates that people think there will be an event and that it could be as soon as this week," said Michael McCarty, an options trader at Meridian Equity Partners Inc. in New York.
--Editor: Baker.
To contact the reporter on this story:
Jeff Kearns in New York at +1-212-617-8138 or
jkearns3@bloomberg.net.
To contact the editor responsible for this story:
Chris Nagi at +1-212-617-2179 or chrisnagi@bloomberg.net.
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