Action in options on securities firm

A.G. Edwards

(AGE) - Get Report

has subsided a bit after exploding on Friday on renewed takeover speculation on the firm.

The company's stock also enjoyed a nice rally Friday. On Monday, however, shares of A.G. Edwards were getting hammered. By midday, they were off 4 25/32, or 8.7% to 50 1/4.

Some options market analysts in research reports Monday noted the unusual activity in A.G. Edwards' options Friday: a marked surge in the price of the options and heavier-than-normal options volume.

Heavier-than-normal options volume and sharp increases in the price of options are two things that typically raise warning flags for options pros, indicating to them that a corporate news event could be on the horizon that could dramatically impact the price of the company's stock.

Brokerage takeover chatter is nothing new, especially in the wake of

UBS'

(UBS) - Get Report

recently announced

purchase of

PaineWebber

(PWJ)

.

What made the action in A.G. Edwards' stock particularly notable on Friday was the fact that the firm's stock jumped higher while the rest of the brokerage sector overall slumped.

Options volume in A.G. Edwards totaled 2,724 contracts Friday, 1,992 of which were

call options, according to

McMillan Analysis

. The average daily volume for A.G. Edwards options is 579 contracts. In his research note to clients Monday, Larry McMillan recommended buying A.G. Edwards on a pullback to 52.

On Monday, call options on A.G. Edwards were getting crushed as the underlying stock price plummeted. The August 50 calls were off 3 7/8 ($387.50) to 2 1/8 ($212.50), while the out-of-the-money August 55 calls were down 2 1/4 ($225) to 1 1/8 ($115).

To say it has been a good year for A.G. Edwards shareholders is a dramatic understatement. As of Friday's close, A.G. Edwards' stock is up 72% for 2000. While shareholders are happy this year, longtime shareholders have suffered for more than two years.

Considering that UBS bought PaineWebber in part for its stable of stock brokers, it would make sense for a larger, diversified financial firm to buy A.G. Edwards, which has more than 6,800 brokers in 680 offices, mostly in the United States.

Consolidation trend aside, however, the company's Chairman and CEO Benjamin F. Edwards III, has expressed no interest in selling the firm.

It looks like there's some people out there betting on the stitches coming out of

Talbots'

(TLB)

stock, considering the amount

put action has drawn the attention of some options analysts.

The lone option contract on Talbots', a women's apparel retailer, trading Monday were the August 50 puts, which were trading up 7/8 ($87.50) to 2 7/8 ($287.50). Meanwhile, Talbots' stock was flat at 50 3/4. On Monday, 150 of the August 50 puts traded, while only 95 contracts had been opened previously on that option.

The Skupp-Seidman options team at

Miller Tabak

has noted the put option action in Talbots' in recent research reports. In a report ahead of the open Monday, the duo noted that the puts on Talbots' got richer, and that the put buying in the options continued.

Put option buyers have the right, but not the obligation to sell a security for a specified price at a certain time, and is generally a bet that the price of the underlying security will drop.

Since hitting a high of 61 1/4 intraday on July 10, it has been downhill for Talbots' stock. Since that recent high, the stock has steadily lost ground and was trading flat at 50 3/4 Monday.