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Buffett Burlington Buyout Rumor: Should You Believe?

When evaluating rumors, as I have said before, you have to decide if the chatter meets the three Vs: volume, volatility, and valuation.

On Monday, we see that Berkshire Hathaway, which owns 22 percent of Burlington Northern, is being chatted up as a potential buyer of BNI along with Chinese railway operator Guangshen Railway.

GSH is trading down $0.71 to $16.11 today, which we could attribute to the 3.4 percent selloff in the broader market as easily as the rumor of its interest in BNI .

BRK is also down, at least 4.75 percent at this writing.

So let's break down the three Vs to see if BNI could indeed be part of the recent takeover wave:

--Volatility: Implied volatility peaked at 55 percent in early March, and stood at 47 percent Friday. Today BNI April calls spiked up to 65 percent again, well surpassing the March highs. May implied volatility stood at 63 percent.

--Volume: Normal full-session stock-trading volume over the last three months has been 4 million shares, but in the first two hours alone today 2.3 million changed hands.

--Valuation: Current valuation of BNI is $20 billion, and our models indicate that a takeover would be at least $26 billion, which is a tough raise right now.

So BNI meets only two of our three Vs, but that doesn't mean there will not be more talk as BNI trades at about $60.50 per share, down on the day but still double some of its biggest competitors.

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Jon 'DRJ' Najarian is a professional investor, CNBC contributor, and cofounder of OptionMonster.com.

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