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Less Can Be More

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One company that we highlighted on Friday was NetApp, which was formerly known as Network Appliance. The company primarily offers data storage services to businesses and, according to our Stacey Gilbert of Susquehanna, is a perennial takeover candidate.

"It's always been one of those names that generates a lot of chatter," said Gilbert.

Never more was that true than last week, when the Wall Street Journal reported that IBM was in talks to buy NetApp rival Sun Microsystems for an estimated $8 billion.

Then Barron's came out over the weekend and threw some cold water on NetApp's chances of being bought, pointing out that IBM's reported deal for Sun takes away a crucial suitor for NetApp.

But according to some industry observers, even if IBM's reported play for Sun leaves NetApp without an acquirer, that may not be such a bad thing in the short-term.

"In the near term, there's going to be a great deal of uncertainty surrounding the Sun's products, and that uncertainty could drive business to NetApp," said Brian Freed, who rates the name an "Outperform" for Morgan Keegan.

Still, even with IBM out of the picture, Freed says a deal could ultimately emerge for NetApp, with the most likely suitors being either Hewlett-Packard, or the acquisition-obsessed Oracle, which is currently sitting on $11 billion in cash.

"Even with Hewlett owning LeftHand Networks, it would not be inconceivable that HP would still want to take a look at NetApp," Freed added.

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Which brings us back to Stacey's options trade for NetApp.

On the show last Friday, she recommended buying Netapp's June 17.5 calls for $0.95. Those calls are now trading at around $1.15, as the market as a whole has rallied, so had you bought-in this morning, you'd probably be sitting on a handsome profit.

But gains notwithstanding, Stacey's trade illustrates a crucial advantage that options have over stocks: capital efficiency. By purchasing the June 17.5 calls for $0.95, Stacey only risks losing her $95 dollars. But had she gone out and bought the stock, she's be on the hook for about $1550 dollars, based on today's prices.

"If you play for a takeover, options are a more attractive alternative as you capital outlay is much less," said Gilbert.

Proving that sometimes, less is more.

Check These Out:

  • NetApp CEO: "How To Castrate A Bull"
  • Life Gets Even Better for Oracle's Ellison

Questions, comments send them to us at: optionsaction@cnbc.com

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