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merger of

Clear Channel Communications



SFX Entertainment


may run into some static before it's done, but one options trade this morning was betting the deal would get consummated.

The two firms announced a $3.3 billion merger this morning that would combine Clear Channel's broadcast holdings and billboards with SFX's live entertainment venues. Before the happy couple gets to the reception, though, some institutional investors say one of the deal's key provisions may prompt shareholder grumbling.

The disparity between the exchange for SFX Class A shares, which will be worth 0.6 share of Clear Channel, and the SFX Class B, which will be swapped 1-for-1 with Clear Channel, could become a point of contention. The Class B shares are held by SFX CEO Robert F.X. Sillerman and other key shareholders.

"The disparity is surprising," said one institutional investor who requested anonymity.

As equity investors were bidding down Clear Channel shares to the tune of almost 8 to 67 1/4, though, one intrepid investor sold more than 1,000 puts into the

Chicago Board Options Exchange


With the stock down more than 6 early, a put-seller offered the April 70 contract, which had previously traded a scant 146 contracts. Word from one New York trading desk said the action was initiated by one seller coming to the floor and that the "crowd was buying."

Typically, it's no surprise when the acquiring company's stock slides in the wake of a deal announcement, but a sale of the April puts shows some investors think crimps in the deal won't last the six weeks until the April 21 expiration and those options will expire worthless.

This morning, however, it seemed like a questionable decision as those April 70 puts traded for 4 1/2 ($450) early in the session but the spread quickly ran to 5 1/4 ($525) and 5 5/8 ($562). By 11 a.m. EST, the contract's premium reached 5 1/4 ($525).

SFX options, meantime, were subdued, with few call-buyers joining in as the stock rose 1 3/8 to 39 3/8.

The morning's trading turned into Palm Tuesday with



shares and options rallying as investors rushed to get positions ahead of the Palm initial public offering spinoff expected Thursday.

3Com options were among the busiest -- especially its out-of-the-money calls -- which represent speculation that its shares will continue to rise through the third Friday of March.

"Most of the business is on the long side," said Gary Semeraro, the options strategist at

SG Cowen

in New York. "There's a lot of volume because everybody wants a piece of this thing."

Especially busy among the 3Com's calls were the March 90 calls, still barely out of the money as the stock rose 9 3/16 to 88 1/4 by midday. That contract traded more than 3,200 and jumped 4 ($400) to 10 ($1,000). The out-of-the-money March 100 calls were also popular, running 3 1/8 ($312.50) to 6 1/2 ($650) on volume of more than 2,800 contracts.