GO
Loading...

No.1 - Unusual Trading Of Dow Jones Options?

The big news today is, well, the news. Rupert Murdoch’s News Corp (NWS). made an unsolicited bid for venerable giant Dow Jones, owner of The Wall Street Journal.

CNBC’s own David Faber broke the news this morning that Murdoch made an offer that would value the company at about $5 billion. Shares of Dow Jones (DJ) skyrocketed nearly 60% on the news.

Faber reported on CNBC late this afternoon that the Bancroft family, which has owned Dow Jones for over a century, opposes the bid.

But why is Murdoch willing to pay so much and why were Dow Jones options trading at 51 times their average daily volume, yesterday?

Dyaln Ratigan explains the options trading in Dow Jones stock ahead of today’s leaked news was unbelievable. One day last week, the call options traded at 35x the total average volume and traded at 51x time average daily volume yesterday. These options would be utterly worthless unless the stock was to go up substantially – so it looks like someone must have known something.



There’s no coincidence here, says Jon Najarian. No one stumbled into a trade. Jon suspects the people who talked to David Faber were very close to the people who bought these calls. Even if you dismiss some of the volume as people chasing the options when they see the volume rising, at least $5 million was made in these two days on options that are useless if the deal doesn’t happen, he says.

Karen Finerman, (who is sitting in for Tim Strazzini) says she wouldn’t touch Dow Jones stock and she doesn’t believe this was a “friendly offer” at all. News Corp. probably called the Bancroft family and told them they wanted to make a bid and the family said they weren’t interested.

Now, with it public, the bid is hostile – which is the only way to put the pressure on the Bancrofts to accept, she says. That being said, she doubts the takeover would happen and wouldn’t be long or short Dow Jones stock.

The move makes sense for Rupert, everyone agrees. He’s starting a business channel under the Fox News brand and having the Wall Street Journal and Barron’s assets would help it immensely, Eric Bolling says. However, today’s news brought up all the other newspaper stocks and that doesn’t make sense, he says. Murdoch is clearly only interested in Dow Jones for its specific assets and there’s no reason to think if his bid failed here, he would try it again with another newspaper company. Eric sees this as a selling opportunity.

Jon Najarian agrees: you’d be nuts to be a buyer of any newspaper stock here, he says, and the Wall Street Journal is a great fit for News Corp. but not for any other company.

But everyone at the table seems skeptical the deal will actually go through. If it’s so unlikely, why is the stock still up around $20?

It simply isn’t about the money, Karen says. Even though Jeff thinks Murdoch will probably sweeten the bid, Eric agrees with Karen: the Bancroft family is not viewing this as a question of money and they will probably decline the offer at any price, he says.

Questions? Comments? fastmoney@cnbc.com

Trader disclosure:
On May 1, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Bolling Owns (DIS), (NMX), Gold, Silver; Karen Finerman’s Firm Owns (BBI); (ISE), (DVA), Finerman’s Firm Owns S&P Puts, CNBC Is A Service Of NBC Universal And Dow Jones.

Symbol
Price
 
Change
%Change
FOXA
---

Featured

Contact Fast Money

  • Showtimes

    Halftime Report - Weekdays 12p ET
    Fast Money - Weekdays 5p ET

Halftime Report