Options Market Banks on Brokers

Call-buyers are playing PaineWebber and Republic National for big moves.
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Bank and brokerage stocks have managed to stagger back from last summer's

Long Term Capital Management

heat stroke and submerging markets' burnout.

For most of the week, they've sparkled in anticipation of strong earnings later this month from companies tied to Wall Street. This morning, however, one options play in particular sparkled more than others among securities firms, and it had little to do with earnings.



, long the subject of takeover speculation, caught the market's eye Friday after

Dresdner Bank AG

reported 1998 net profit ahead 55% and unveiled plans to raise 2.8 billion marks in the U.S. fixed-income market in the second quarter.

The logic goes something like this: Dresdner plans to tap U.S. investors for capital, increasing the likelihood that the German giant will buy a U.S. investment bank before it links up with partners in Europe. Plus, Dresdner has been rumored to be interested in PaineWebber


All of that may help explain why PaineWebber out-of-the-money May 45 calls were trading at a fairly expensive 2 3/8 (or $237.50 per contract), with open interest of 273 contracts and volume of 2,256. "It's certainly a lot higher than the other months," said one Philadelphia-based options trader. "It wasn't a rollover

to a later month in the calendar, just some outright buying from the crowd." July 45 calls, for contrast, were up just 1/2 (or $50 per contract) to a bid of 3 1/4.

PaineWebber stock was up 1 to 42 1/4.

By raising the bank's core capital, "we strengthen the basis for the group's further growth in a cost-effective way," Dresdner Chairman Bernhard Walter said at the bank's annual earnings press conference.

Another bank that's been surrounded by takeover rumors in the past,

Republic National Bank


, also generated speculative options volume.

However, keep in mind that "the entire banking sector has been up the last week or so," according to Leon Gross, institutional options strategist with

Salomon Smith Barney


Merrill Lynch


shares, at around 98, are closing in on their 52-week high of 109 1/8 reached last summer.

Charles Schwab


stock rose 3 9/16 to a new high intraday of 123 7/16.

Gross pointed out that on the Republic story, May and June 55 out-of-the-money calls "are pricing in higher implied volatility than at-the-money calls, so that means there's unusual interest.

"A lot of times, people don't care how much they'll pay for the option when it comes to takeover speculation, and one thing you find is, first, unusual volume, and then out-of-the money options action," he said. Republic National shares were up 1 3/8 to 53 5/8.