Nextel Options Pop on Telecom Deal Plays

Options on Nextel Communications (NXTL Quote) may have been enjoying some sympathetic speculation this morning after a published report said Deutsche Telekom (DT Quote) made a bid for rival VoiceStream Wireless(VSTR Quote).

Volatility Index Today % Change 21.88 -4.37 Source: ILX

The Financial Times reported that Deutsche Telekom has made an offer to buy VoiceStream, a mobile phone firm, valuing VoiceStream at more than $30 billion.

Put/Call Ratio Today (Noon) Previous Close 0.43 0.40 Source: ILX

Nextel, a wireless communications company based in Reston, Va., was higher on speculation, in part that it might be taken over, and also on the strength of a spanking-new buy rating from J.P. Morgan, which initiated coverage Tuesday.

Nextel shares rose 2 11/16 to 66 13/16, creating strength that attracted activity in Nextel's August 67 1/2 call . Just over 400 of those contracts traded on the Chicago Board Options Exchange, and the premium climbed 1 1/4 ($125) to 6 1/8 ($612.50).

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Larry McMillan, of McMillan Analysis, said he's seeing a lot of negatives for the overall market right now. However, that doesn't mean that the market can't go higher over the short term. As a result, he's suggesting that clients have tight stops in place.

As for individual issues, McMillan said he's keeping an eye on e.spire Communications(ESPI Quote). McMillan said his firm would be buying if the stock can close above 7 1/2.

Options volume on the stock has been notable at times lately. On Monday, 1,376 options contracts -- mostly calls -- changed hands according to McMillan's morning research note, dwarfing the average daily volume of 390 contracts.

On Tuesday, shares of e.spire were down 1/2 to 6 5/16, and the frenzied e.spire call action had mostly subsided. Trading in calls was spread across a number of months and various strike prices. The heaviest volume was in the August 7 1/2 calls on the Philadelphia Stock Exchange, where 80 contracts traded. The contracts were trading unchanged at 13/16 ($81.25).

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The smaller version of the CBOE's options contract on the Nasdaq 100 will begin trading Monday, July 24, with Wolverine Trading serving as the designated primary market maker in the product, the CBOE said.

The new contract will be 1/10th the size of the current NDX options contract, according to the exchange.

The new contract on the CBOE will offer investors a product to trade that is closer in size to the wildly popular options contract on the Nasdaq 100 unit trust(QQQ Quote), but not as small.

Options on the regular NDX at the CBOE are almost entirely traded by institutional investors because of the size, and subsequent cost, of the contract.