H&Q Rumors Bring Call-Buyers Out

Rumor-trage plays are breaking out all over.
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Regional oil and gas companies and a San Francisco-based brokerage firm swirled in the merger well Friday, jacking up call option prices in those issues.

Vintage Petroleum

(VPI)

,

Unocal

(UCL)

and

Houston Exploration

(THX)

calls were active Friday.

But even juicier was activity signaling high-tech investment bank

Hambrecht & Quist

(HQ)

may be on the verge of being acquired.

Last year, the firm almost struck a deal with giant

Merrill Lynch

(MER)

. The possibility that it may be hunting a deal again lit a fire under H&Q call action for the second consecutive session, as the stock climbed 1 3/4 to 43 7/8 by midday.

Given that today is the monthly expiration date for August-dated options, investors piled out of the short-term bets and extended their call-buying into September-dated options. H&Q's September 45 calls gained 1 7/16 ($143.75) to 2 7/8 ($287.50) on volume of 150 contracts, against open interest of 135.

"It looks like overall there's about 3,000 contracts of open interest in

all the H&Q calls, but the volume is not that much as compared with other names," said Leon Gross, institutional options strategist with

Salomon Smith Barney

in New York.

Implied volatility, the heartbeat of an option and an important measure traders use to gauge speculative demand, had been as high as 70 in Hambrecht & Quist. It dipped to around 40 by mid-August, Gross said, and on Friday had ticked up to 55 in both the September and November options. "Again, it's up, but not in a huge way."

Added Paul Foster with

1010wallstreet.com

in Chicago: "H&Q a few months ago was pushing away the takeover rumors. But the last few weeks the IPO stream has died; is there an exit strategy here now?"

H&Q built its reputation as one of three San Francisco firms --

Montgomery Securities

and

Robertson Stephens

were the others -- to finance many of the high-tech companies that have hit the public markets in the 1990s. It is the only one that remained independent.

Call activity in regional oil companies should probably be taken with a barrelful of salt -- after all, it amounts to speculation on speculators. Houston Exploration, a domestic oil and gas exploration company, and Vintage Petroleum call options were both active, with Vintage August 12 1/2 calls up 1/4 ($25) to 3/4 ($75) on volume of 100 contracts.

An analyst with

Southcoast Capital

, based in New Orleans, initiated coverage on Houston Exploration and issued a research note on Vintage as well. The analyst wasn't immediately available to comment.

On the expiration front, the

S&P 100

index was up 5.04 to 692 today, leaving many put-buyers of the past two days disappointed.

The biggest volume of the day came, as expected, in the August 690 calls, which traded more than 10,000 contracts and jumped 1 13/16 ($193.75) to 3 1/2 ($350) by midday. The out-of-the-money August 695 calls attracted volume of more than 6,000 contracts, traffic that goosed the premium up 1/8 ($12.50) to 5/8 ($62.50) by just after noon.

The premium in the puts, meanwhile, evaporated with the market's solid, if unspectacular, morning.

Elsewhere in options, a blast from the television past.

Paxson Communications

(PAX)

wasn't kidding around when it said it was exploring "strategic alternatives." And neither were the call-buyers in Paxson options

earlier this month.

Paxson delivered news Friday that

NBC

, a unit of

General Electric

(GE) - Get Report

, is in talks to buy a stake in the upstart television network that has become a hot media property following a change in government rules this month.

Last time Paxson options made an appearance in this column, August 12 1/2 calls were trading at 1 15/16 ($193.75). On Friday, those August 12 1/2s were due to expire but had since run up to 3 5/8 ($362.50). The stock was trading at 16, down 1/4.