Daily Dealmaking Pushing Wall Street Rumor Mill to a Fever Pitch
With global merger volume running 40% ahead of last year's record levels, and private equity barbarians scooping up one company after the next, the Wall Street rumor mill - in turn - is also running at a record pace. Just today, Dow Jones reported on speculation that Palm (PALM) may be purchased by Dell (DELL). Also today - an odd story from Dow Chemical (DOW), which said it fired two executives for trying to sell the company out from under the CEO. When The Wall Street Journal readsmore like the New York Post, how do you sort the rumors from fact?
Jon Najarian, who uses the options market to uncover unusual stock activity, is seeing speculative buying in several names like Talisman Energy (TLM), Electronic Data Systems (EDS) and Boston Scientific (BSX). When a rumor is involved, he says he wont make a move until he sees money backing up the rumor. Like the saying goes, put your money where your mouth is, he says. No seasoned investor would just trade on rumors.
Tim agrees, and he’ll take a rumor more seriously when he sees options money chasing a name. When there’s a stock that’s been a rumored takeover target for a year, the options market starts to take on a different look, he says. But if a rumor has been going on for so long then any potential deals become widely know, the options market overprices what’s going to happen and the stock goes up to the price at which it would have been taken over at. By that time, if the deal happens, it’s already long been public information.
Questions? Comments? fastmoney@cnbc.com
Trader disclosure:
On APR 12 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders:
Strazzini Owns (SNDK), (NWS.A)
Macke Owns (SWY)
Najarian Owns (ARO), (AMLN), (BRCM), (CAT), (COST), (KSS), (MEDI), (PENN), (AAPL), (TLM), (EDS), (BSX)
For the record:
Strazzini Owned (SNDK), (BRCM) On 3/9/07