Call-Buying Resurrects Rumors

Plays on J.P. Morgan and National Semi pop up amid call-buying.
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Thursday's trading session turned into a post-

Bob Rubin

, pre-Friday rumor whirligig, with names as diverse as

National Semiconductor

(NSM)

and

J.P. Morgan

(JPM) - Get Report

popping up as takeover targets.

Let's start with the financials.

Warburg Dillon Read

analyst Thomas Hanley said Thursday that J.P. Morgan may decide to sell to another banking institution over the next year, pushing the stock up 5 3/4, or 4.1%, to 144 7/8. The call options have surfaced on the big moves list for weeks, although traders say that is in part because the options are somewhat illiquid, triggering large percentage moves in the options.

Who'd marry J.P. Morgan? "Chase is the name out there," said one Philadelphia-based trader, and indeed, Hanley wrote Thursday that hypothetical merger partners could include

Chase Manhattan

(CMB)

,

Goldman Sachs

(GS) - Get Report

,

Merrill Lynch

(MER)

and

First Union

(FTU)

.

"What's around is that if there was increased interest by a top-tier bank like Chase in Morgan Stanley, then you'd see a pre-emptive strike by Goldman to buy J.P.," the traded added, taking a quick turn into Downtown Speculationville.

Well, sometimes it's important not to take the rumors too seriously, especially before Friday, when chatter hits the tape in time for the pros to sell out of their positions or get long before heading out for the weekend.

"Volatility in J.P. Morgan has spiked a little bit, but it's often difficult to know why or how these rumors come about, between Bob Rubin resigning and the

FOMC

meeting on Tuesday," said the trader. "Any financial stock, investment bank, even cyclicals, is going to go crazy, and we'll have a hard time reading too much into that."

"If you're going to buy options on those J.P. Morgan rumors and the Morgan Stanley rumors, don't hold them over the weekend. Buy them today and sell them when the stocks spike on the usual Friday rumors."

J.P. Morgan's June 145 calls shot up 4 5/8 ($462.50) to 9 ($900) on volume of 431 contracts, compared with open interest of 167.

Meantime, National Semi's May 20 calls were going through the roof, up 1 1/4 ($125 per contract) to 2 1/16 ($206.25) on volume of over 3,500 contracts. That's compared with 3,900 in open interest. "Rumor has it," said the head of one options strategy desk in New York, "that National Semi is getting ready to go on the block."

Consider this: National Semi is reportedly in talks with a buyer for plants it has already slated for closure. Who would buy the chipmaker?

The trader didn't have any names on tap. An official with investor relations at the company wasn't immediately available to comment on the market's chatter.

The CBOE's key put-call ratio spiked to 0.46 in midsession before pulling back a bit to 0.45. What gives? "Even though the volatility is holding up, nothing's really pushing the market one way or the other, except for the rally back this morning from the Rubin news," said one index options trader in the Chicago pits.

Options traders said there was still concern that the kind of quick, steep fall the market saw when Rubin quit could happen again for a host of other reasons. "I still think there is the potential for a big market selloff out there," said David Schultz of

Summit Capital Management

. "So I'm still holding some OEX puts."