Call Buyer in Monster Worldwide

By Jud Pyle, CFA, chief investment strategist for the Options News Network

Takeover chatter surrounding employment company Monster Worldwide (MWW Quote) resurfaced this morning, which instigated a pop up in the stock and subsequent call-buying.

Morning reports said News Corp. (NWS Quote) is the latest candidate rumored to be interested in acquiring MWW. Shortly after this takeover rumor hit the wires, volume in the December 17.5 and November 15 strikes spiked.

The out-of-the-money December 17.5 calls have traded more than 17,500 times today vs. current open interest of 1,600 contracts, indicating investors traded these options to open. These calls have gained 30 cents so far on the day to a price of around 50 cents. The delta of these calls is roughly 33, and MWW shares have rallied 78 cents, or 5%, to $15.99. That means these calls should climb just 33 cents for every dollar move in the underlying, but the calls are currently up more than the delta would suggest. Additionally, the call-buying action we saw today has increased implied volatility on the December call to 56.

Nearly 10,000 November 15 calls have crossed the tape so far today vs. open interest of 4,900 contracts, but this action could merely be an investor getting in on the rally days prior to expiration.

Call buyers are expecting MWW shares to expire higher than $18 (the strike price plus the premium paid) come December expiration, but if the stock gains value before they expire, they could sell these contracts to book a profit.

Normal daily options volume in MWW is just 465 contracts, so the number of contracts trading at this strike is highly unusual. At least one investor is bullish on the possibility of MWW shares gaining about 12% during the next month.

Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.