Outback Gives an Idea on Applebee's

Nasdaq Stock Market (NDAQ - commentary - Cramer's Take) reported better-than-expected fourth-quarter results, and that might have investors taking another look at this stock. Its shares are down some 12% over the past year and have badly lagged the performance of other publicly traded exchanges. Investors have been focused on its failed attempt to acquire/merge with the London Stock Exchange while its rival New York Stock Exchange (NYX - commentary - Cramer's Take) has successfully merged with Euronext to create a global platform which includes derivatives trading.

The implied volatility of the options on Nasdaq were already sitting near 52-week lows prior to the earnings and are likely to get cheaper today following the report. And while the low IV reading might be an indication that the stock isn't going anywhere too fast, it does make call options a low-cost way to gain upside exposure. Without the distraction and concerns that it would overpay to acquire the LSE, investors might refocus on the internal growth and profitability. With the stock around $35, the June $40 calls can be purchased for about $1.50 per contract.

Applebee's (APPB - commentary - Cramer's Take) has withdrawn its previous 2007 guidance, as its board said it plans to explore strategic options for the company, including a possible sale. Shares of Applebee's have not performed badly of late, gaining some 30% to $25 since it and the whole casual dining group bottomed last August on concerns that high fuel prices would crimp the consumer.

Investors might look at Outback Steakhouse parent OSI Restaurants (OSI - commentary - Cramer's Take), which announced it was being taken private last November for about a 30% price premium, to get a handle on what type of value could be placed on Applebee's. Shares of Applebee's are up some 10% in premarket trading, and I expect the call options to be very active and implied volatility to increase substantially today.

Another name that should see above-average option activity today is Alcoa (AA - commentary - Cramer's Take), whose shares are up some 7% in premarket trading on news that mining giants BHP Billiton (BHP - commentary - Cramer's Take) and Rio Tinto (RTP - commentary - Cramer's Take) are each contemplating their own bids for the aluminum producer.

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Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback; click here to send him an email.

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