Options Activity Centers on Commodities Names

Traders focused on the oil-services index and on USG.
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Commodities swung back into the Wall Street limelight Monday with a massive oil-driller merger deal, highlighting the shotgun-marriage trend in that sector, and some heavy retail options trading in gypsum wallboard maker

USG

(USG)

.

A deal announced Monday by

Schlumberger

(SLB) - Get Report

lit a fire under the drilling sector. Schlumberger agreed to spin off its offshore contract drilling business and merge it with

Transocean Offshore

(RIG) - Get Report

.

"This is an underowned sector among institutions, and they've been beaten up so bad they've had to consolidate," said one head of a major institutional options desk. "All these companies were on the fringe in the last year or so, and now people want a little more play in the group."

Among the more active index plays were the July 70 and September 70 calls in the oil-services index, which trades as OSX on the

Philadelphia Stock Exchange

. The OSX was up 0.45 to 79.90.

July 70 calls gained 5/8 ($62.50) to 10 1/8 ($1,012.50) on volume of 3,000 contracts, compared with open interest of 8,588. September 70 calls gained 3/8 ($37.50) to 13 5/8 ($1,362.50) on volume of 3,000 contracts and open interest of 7,775.

Merrill Lynch

(MER)

Monday raised its target price on oil stocks such as

BP Amoco

(BPA)

, citing an increase in oil prices and technical factors. With the stock up 3 5/16 to 117 1/2, the oil giant's August 120 call options shot up 1 1/16 ($106.25) to 2 7/8 ($287.50). October 120 calls gained 2 1/2 ($250) to 6 1/8 ($612.50) on roughly equal volume and open interest of 820 contracts.

Meanwhile, there were a few other companies with unusual options activity but no news, among them

ARM Financial Group

(ARM)

, oft-mentioned as among the lowest-rated financial services stocks by Wall Street analysts. The company provides retail and institutional products for retirement savings, annuities and guaranteed investment contracts.

Call options, nevertheless, were up across the active strike prices. ARM's stock was up just 7/16 to 9 1/2, not far off its 52-week low. August 10 calls ticked up 1/2 ($50) to 1 3/8 ($137.50), and November 15 calls gained 7/16 ($43.75) to 1/2 ($50).

Finally, heavy retail call buying in USG, up 1/2 to 60, attracted the attention of options players, with the August 60 calls gaining 1/4 ($25) to 3 1/2 ($350). August 65 calls were up 3/8 ($37.50) to 1 7/8 ($187.50).

USG is a holding company whose subsidiaries manufacture and sell

gypsum wallboard under the brand name

Sheetrock

and cement board under the

Durock

name.

Separately,

Goldman Sachs

(GS) - Get Report

agreed to buy

Hull Group

in a transaction valued at $531 million in Goldman stock, options and cash. In a press release Monday, Goldman said the transaction is scheduled to close in the fall and is subject to regulatory approval.

Hull Group provides electronic market-making and transaction services on 28 exchanges. In May,

TheStreet.com

broke the news that Hull

filed a registration statement with the

Securities and Exchange Commission

for an initial public offering, which it had expected to complete in this month. Instead, however, it chose to sell.