Nextel Options Pop on Telecom Deal Plays

Nextel is up on takeover rumors. Also, the CBOE will offer a smaller options contract, beginning July 24.
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Options on

Nextel Communications

(NXTL)

may have been enjoying some sympathetic speculation this morning after a published report said

Deutsche Telekom

(DT) - Get Report

made a bid for rival

VoiceStream Wireless

(VSTR)

.

The

Financial Times

reported that Deutsche Telekom has made an offer to buy VoiceStream, a mobile phone firm, valuing VoiceStream at more than $30 billion.

Nextel, a wireless communications company based in Reston, Va., was higher on speculation, in part that it might be taken over, and also on the strength of a spanking-new buy rating from

J.P. Morgan

, which initiated coverage Tuesday.

Nextel shares rose 2 11/16 to 66 13/16, creating strength that attracted activity in Nextel's August 67 1/2

call. Just over 400 of those contracts traded on the

Chicago Board Options Exchange

, and the

premium climbed 1 1/4 ($125) to 6 1/8 ($612.50).

Larry McMillan, of

McMillan Analysis

, said he's seeing a lot of negatives for the overall market right now. However, that doesn't mean that the market can't go higher over the short term. As a result, he's suggesting that clients have tight stops in place.

As for individual issues, McMillan said he's keeping an eye on

e.spire Communications

(ESPI)

. McMillan said his firm would be buying if the stock can close above 7 1/2.

Options volume on the stock has been notable at times lately. On Monday, 1,376 options contracts -- mostly calls -- changed hands according to McMillan's morning research note, dwarfing the average daily volume of 390 contracts.

On Tuesday, shares of e.spire were down 1/2 to 6 5/16, and the frenzied e.spire call action had mostly subsided. Trading in calls was spread across a number of months and various strike prices. The heaviest volume was in the August 7 1/2 calls on the

Philadelphia Stock Exchange

, where 80 contracts traded. The contracts were trading unchanged at 13/16 ($81.25).

The smaller version of the CBOE's options contract on the

Nasdaq 100

will begin trading Monday, July 24, with

Wolverine Trading

serving as the designated primary market maker in the product, the CBOE said.

The new contract will be 1/10th the size of the current NDX options contract, according to the exchange.

The new contract on the CBOE will offer investors a product to trade that is closer in size to the wildly popular options contract on the

Nasdaq 100 unit trust

(QQQ) - Get Report

, but not as small.

Options on the regular NDX at the CBOE are almost entirely traded by institutional investors because of the size, and subsequent cost, of the contract.