Methode Electronics Options Buzz Before Unit's IPO - TheStreet

Methode Electronics Options Buzz Before Unit's IPO

Implied volatility on Applied Graphics Technologies options continues sharply higher.
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Options trading in

Methode Electronics


was active again ahead of this week's slated initial public offering of the company's wholly-owned unit

Stratos Lightwave


After the IPO, Methode will own about 86% of the stock of Stratos, which makes optical subsystems and components for high-data rate networking, data storage and telecommunication applications. Methode plans to divest the stock to its shareholders. The 8.75 million-share IPO has an expected price range of between $16 to $18.

A decent amount of call selling on Methode options was reported in trading on the

Pacific Exchange

. One P-Coast source did point out that call buyers were also active in the name.

Methode stock, which enjoyed a huge pop Friday, was trading down 13/16 to 42 7/16.

By midday Monday, about 1,140 of the July 50 out-of-the-money calls changed hands. The July 50 calls were up 1/8 ($12.50) to 2 7/8 ($287.50). The July 45 calls were also popular, with about 620 contracts trading. The calls were down 1/2 ($50) to 4 ($400).

Meanwhile, on Friday, Methode announced a stockholder rights plan designed to protect the company and shareholders "against unfair or coercive takeover tactics." The company noted that the rights won't prevent a takeover, but it "should encourage" companies looking to buy Methode "to negotiate with the Board prior to making a bid for a substantial stake in the company."

Options volume has been heavier-than-usual on Methode over the past few sessions. On Friday,

McMillan Analysis

pointed out that 3,312 contracts traded, 3,157 of which were calls. Average volume on Methode is 195 contracts, McMillan noted.

Implied volatility on options on

Applied Graphics Technologies


continued sharply higher Monday.

Implied volatility -- the market's measure of how much a stock can move -- on Applied Graphics soared as high as 198 on Friday, said McMillan.

The stock has had a nice surge lately. On June 21, the stock closed at 3 9/16 and today was trading up 1/8 to 5 1/4. McMillan noted that implied volatility lately has been about the only clue a takeover could be afoot (It typically rises ahead of some kind of news event, such as a takeover or earnings report, that can dramatically move the stock.

Paul Foster of

said implied volatility on August 5 options was 181 Monday. Applied Graphics, a provider of digital media production services is based in New York.

In general, options trading in Applied Graphics isn't very busy. On Monday, the heaviest volume was 70 contracts for the September 7 1/2 calls, which were trading up 5/16 ($31.25) to 7/8 ($87.50). The August 5 calls were trading up 1 3/16 ($118.75) to 1 13/16 ($181.25) on volume of 52 contracts.