Merger Pursuit Captivates Options Traders

Looking past any morning weakness, options traders went for takeover plays.
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The stock market staged a strong turnaround by midsession today, but the options market had forsaken sentiment plays for a lusty pursuit of mergers, mergers and more mergers.

Would a leg down have an effect on stock-for-stock deals? "The market's all over the place, and if we go into a prolonged correction, then maybe I'd worry," said Tom Burnett, president of

Merger Insight

in Manhattan. "Some deals might be vulnerable, but by no means now. Wake me up at 9000."

The

Chicago Board Options Exchange's

volatility index, the market's key fear gauge, briefly breached the historically important 25 top-range level. But it has since come in somewhat as key indices returned from an early morning selloff.

TheStreet.com Internet Sector

index was down sharply, however, losing 2.75% to 575.5.

So, for the moment, Burnett is looking at the

Texas Instruments

(TXN) - Get Report

-

Unitrode

(UTR)

deal and at "some of the smaller guys in Unitrode's type of field who might be in line to be acquired." Power management components are the fastest-growing segment of the market for analog semiconductors.

Among those in similar businesses are

Exar

(EXAR)

, one analog chipmaker previously

highlighted by

TheStreet.com

;

International Rectifier

(IRF)

, a supplier of power systems services; and

Burr-Brown

(BBRC)

, another component company.

Separately, options investors were keeping an eye on

ACT Networks

(ANET) - Get Report

, a network hardware company.

ACT stock had sold off heavily last week on earnings, but then the stock reversed itself. The share price was up 1/4 to 16/18 Monday on vague takeover rumors. But the call prices weren't cooperating: August 17 1/2 calls were down 15/16 ($93.75) to 7/8 ($87.50), leaching some credibility from chatter that a takeover might be imminent.

Roberts Pharmaceutical

(RPC)

surprised the Street Monday after news that it will be acquired by

Shire Pharmaceuticals

(SHPGY)

in a transaction valued at close to $1 billion.

Roberts shareholders will get 1.0427 to 1.2802 in Shire ADRs for each share of Roberts and will hold 44% of the resulting company. Roberts Pharmaceutical stock was up 15/16 to 25 15/16.

Roberts options activity was

featured in this column earlier in the month, but oddly the calls options have actually dropped in price from their previous frothy levels because of the slim premium on the deal.

Internet message boards on Monday were flooded with posts from shareholders unhappy with what they felt was too low of a buyout premium and hoping for better offers.

When

TheStreet.com

first wrote about the call activity, the August 25 calls were trading for 2 7/8 ($287.50) and out-of-the-money October 30 calls gained 3/8 ($37.50) to 2 1/8 ($212.50).

On Monday, those August 25 calls were down 1 1/4 ($125) to 1 ($100), and the October 30s hadn't traded. However, the August 30s were unchanged at 1/2 ($50).