Our Heat Seeker spied a couple takeover candidates this morning and per usual, I am trading both from the long side.
The first to hit was Textron, maker of Bell Helicopters as well as Cessna and Citation business jets. Normal activity in TXT is just over 1,100 calls per full session, but today Trademonster shows 23,000 calls trading in the first 90 minutes!
April 22 calls traded over 12,000 contracts in blocks of up to 500 contracts. Those bought on the offer outnumber the calls sold on the bid by better than 2:1. Yes, there is takeover chatter. The volatility in the front month spikes to 44 percent from 34 percent in TXT on the LBO chatter.
If TXT breaks $23 it will be a HUGE breakout and that's part of the reason for the optimism here, but the other reason is the LARGE short interest, as some 10 percent of the float, or 26 million shares held by shorts, so this gets ugly fast for the shorts.
I'd consider the May 22 calls long against the May 24 calls for $.75 as a reasonable reward versus risk trade here.
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The second to hit with takeover or LBO rumors was Palm, which has been among the most hard hit stocks in 2010. The hedgies are very specific, saying that Lenovo is the potential suitor and that's helped PALM surge over 12 percent in the first 90 minutes.
Remember folks, volatility in PALM was well in excess of 100 just recently on their post earnings meltdown. Additionally, volatility for a $4 stock much different than for a $70 stock, so the 90 percent reading that PALM started the day at was not extraordinary. However, I now show the front month April options pricing at 112 percent, a dramatic surge indeed!
A very nice cheap shot for Lenovo to buy 'em, someone else, or just a minor recovery is to own the Aug 4 calls for $.87 and be short the Aug 6 calls for $.32, thus spending just $.55 for a 136 day ticket. Hell, at this level Bono himself could buy PALM and with just $.55 on the table, you gotta like the potential reward versus the risk.
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Trader disclosure: On Apr 7, 2010, the following stocks, commodities and or options were owned by Fast Money trader Jon Najarian; Jon Najarian Owns owns Call Spreads in (PALM), Jon Najarian Owns owns Call Spreads in (TXT), Jon Najarian Owns owns Call Spreads in (AAPL)
Added Disclosures:
Trader disclosure: On Apr 7, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Jon Najarian Owns owns call spreads in (PALM), (TXT), (AAPL); Jon Najarian Owns (AAPL) Call Spreads; Jon Najarian Owns (AKS), Is Short (AKS) Calls; Jon Najarian Owns (BAC) Preferred; Jon Najarian Owns (FCX), Is Short (FCX) Calls; Jon Najarian Owns (C) Preferred; Jon Najarian Owns (GS), Is Short (GS) Calls; Jon Najarian Owns (IP) Call Spreads; Jon Najarian Owns (MCD), Is Short (MCD) Calls; Jon Najarian Owns (MS) Preferred; Jon Najarian Owns (NYT); Jon Najarian Owns (PALM) Call Spreads; Jon Najarian Owns (RIMM), Is Short (RIMM) Calls; Jon Najarian Owns (WFC) Preferred; Jon Najarian Owns (WMT), Is Short (WMT) Calls; Jon Najarian Owns (PALM) Call Spreads, (TXT) Call Spreads, (AAPL) Call Spreads; Terranova Owns Gold, Oil; Terranova Is Short (XLY); Kelly Owns (FXE) Puts; Finerman's Firm Is Short (IYR), (IJR), (IWM), (MDY), (SPY); Finerman's Firm Is Long S&P Puts; Finerman Owns (AAPL); Finerman's Firm Owns (BAC), (BAC) Leap; Finerman Owns (BAC), (BAC) Preferred; Finerman's Firm And Finerman Own (CVS); Finerman's Firm And Finerman Own (JPM); Finerman Owns (USO); Finerman's Firm And Finerman Own (WFC) Preferred; Finerman's Firm Owns (WMT), (YUM), (MCD), (SKS); Funds Managed By Dennis Gartman Are Short S&P 500; Funds Managed By Dennis Gartman Are Short Euro; Funds Managed By Dennis Gartman Are Short Yen’ Funds Managed By Dennis Gartman Are Long Gold; Funds Managed By Dennis Gartman Are Long Natural Gas Trusts; Funds Managed By Dennis Gartman Are Long Copper; Funds Managed By Dennis Gartman Own (AAPL); Funds Managed By Dennis Gartman Own (DRI); Funds Managed By Dennis Gartman Own (FCX); Funds Managed By Dennis Gartman Own (GLD); Funds Managed By Dennis Gartman Own (PNRA); Funds Managed By Dennis Gartman Are Short (RIMM); Funds Managed By Dennis Gartman Are Short (SPLS)
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