Jon Najarian: 4 Possible M&A Plays to Watch

It's been quite a while since Yahoo! shareholders got good news, but the chatter that the online media company is the target of AOL and a group of private equity firms has shares trading to its highest levels since mid-April when the stock touched $19.12.

Somewhat disconcerting, however, is how quickly the stock gave up a 12 percent rally for a more modest 5.5 percent gain.

Just an hour into trading Thursday, our computers show 146,000 options changing hands in YHOO against a 30-day average turnover of just 31,000 contracts. If you take a look at the volatility skew from October to April you note the big jump in October options, which ramped up from 32 percent to 86 percent overnight!

This story has broader implications than just YHOO, however, as the potential of a $21 billion takeover/merger makes a host of other takeover plays even more believable. Some that are hitting our radar Thursday include Akamai Technologies, EMC and Plains Exploration & Production.

Akamai Technologies: More than 12,700 calls trading against full session average turnover of just over that amount Thursday. The trouble with this one is that the buying is nearly all in October, meaning those options that have just 1 1/2 days to live. That's not smart money folks, that's speculation and if AKAM doesn't move and move fast, as in 24 hours, it is dumb money!

EMC: Hedgies saying EMC moving strong in the pre due to unconfirmed speculation in UK press regarding takeover bids. Now while the hedge funds say they've heard this "rumor", this is a $42 billion beast, meaning that a takeover comes north of $50 to $55 billion, which is a HUGE bite.

Hedgies cite Oracle's cash position, which makes them a believable potential buyer, but Microsoft also thrown in as possible suitor. I show over 63,000 calls trading mostly (65 percent) on the offer and that means they are being accumulated by institutional players. Our computers show big numbers of block options trades in November at the 22 and 23 strikes.

Volatility picks up to 64 percent from 27 percent and that reflects an unwillingness of market makers to sell premium, a telltale sign that something could indeed be underway.

Plains Exploration & Production: More than 9,600 calls trading versus just 865 puts Thursday. That's nearly full session volume in the first hour of trading. Shares trading up .5 percent and volatility up to 60 from 46 percent. That surge in volatility reflecting the uncertainty of chatter among hedge funds that Plains could be a takeover target.

I am long call spreads in PXP and EMC. Nothing in YHOO or AKAM at this time.

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