What to make of all the call buying on Hershey's today?
Options traders snapped up the 35-strike calls for both the March and April contracts as if they were Hershey's Kisses, buying nearly 13,000 of the March 35-strike calls and 9,000 of the April 35-strike calls. This on a day when the stock actually lost over 3%.
Is there a sweet deal in the offing?
"This is a perennial takeover name, and clearly some investors feel the risk reward is attractive here," said "Options Action" contributor Stacey Gilbert. "20-day Call volume runs around 700 contracts. Today just 28,000 calls traded, most of which were bought," Gilbert added.
The stock has had a tough go as of late, succumbing to the market swoon that has whacked pretty much any stock under the sun. But according to some analysts, the fundamentals of the company are quite sound.
"Great brands, great cash flow, and a clean balance sheet," said Doug Christopher, who covers the name for Crowell, Weedon & Co. (BUY). "And it's cheap."
Hershey's trades at about 16 times '09 earnings, well below its 10-year average of 22. And at a time when cash is king, its 3.5% dividend could come in handy.
The company has been the subject of Nestle takeover speculation in the past. But Christopher and others see a more likely suitor, if one ever emerges. "It's the kind of name you could imagine a Buffett owning."
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