Takeover Hopes Draw Option Bulls to MIPS
wants to be acquired, and the bulls jumped into the name yesterday.
The stock rallied last Thursday after hiring Goldman Sachs to find a buyer, followed by a pause in the next two sessions. OptionMonster’s tracking systems detected heavy activity in the July 7 calls, with more than 3,600 contracts trading against previous positioning of just 1,173. Most of the large blocks were purchased early for $0.75 and $0.80.
MIPS shares started to climb shortly after the option activity and ended the session up 11 percent to $6.97. The company, which provides designs for home-electronics devices like DVD players and TV set-top boxes, lost more than two-thirds of its value last year and has been basing out since August. It is scheduled to post earnings results after the close on April 26.
Yesterday’s callsfix the price the trader must pay to buy the stock, so they can appreciate rapidly if MIPS rallies. For instance, the contracts ended the session valued at more than $1, representing a gain of more than 20 percent. The risk of options is that, unlike the shares themselves, they can lose all of their value if the stock fails to move in the right direction.
More than 6,000 MIPS contracts traded overall yesterday. Calls outnumbered putsby more than 30 to 1, a reflection of the bullish sentiment.
—Russell has no positions in MIPS.
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David Russellis a reporter and writer forOptionMonster .