Options Play on Interstate Bakeries Deal Goes Stale - TheStreet

Enthusiasm for options on

Interstate Bakeries


has cooled noticeably lately despite the recent takeover rumors swirling around the company.

Unusual amounts of volume and high implied volatility on Interstate Bakeries options have caused the company to pop up on the radar screens of some options pros as speculators play the company's options hoping to score big. The company, based in Kansas City, Mo., makes Wonder bread and Hostess snack cakes.


Chicago Board Options Exchange

floor source said that early last week call buyers targeted June out-of-the-money contracts speculating on a deal. That action only lasted a couple of days as chatter that the company was going to be taken over circulated.

But when a deal failed to materialize traders seemed to lose interest.

The trader also pointed out that call buyers weren't professional so the unusually heavy traffic may have been more speculative than informed. With June options expiration slated for Friday, those call buyers find themselves with rapidly deteriorating options.

Interstate Bakeries' stock has improved lately, but it is still well off its 52-week intraday high of 24 15/16. The stock was trading down 1/4 to 14 11/16. Since May 1, the stock has traded in about a 2-point range. The company was mentioned in

Business Week's

Inside Wall Street column on Friday as an acquisition target, but the stock didn't move on the story. Interstate closed Friday unchanged at 14 15/16.

Activity in Interstate Bakeries options Monday was relatively light. The July 15 calls were most active. The calls were trading down on volume of 108 contracts. The July 15 calls were trading at 1 3/4 ($175), down 5/16 ($31.25).

Of the takeover talk, Jon Braatz, who covers Interstate Bakeries at

George K. Baum

, in Kansas City, Mo., said "whether it's warranted, you never know." Braatz said, "Clearly the company hasn't performed well," and "You begin to wonder if someone could come in and do a better job."

The increased speculation that the company will get taken over may stem partially from the recent announcement that


(UN) - Get Report

plans to acquire


(BFO) - Get Report


Braatz said he thinks that the company's going to have a difficult fourth quarter, but he added that the stock has probably fallen to a level where it can't get much worse. However, he noted that if the speculative fervor surrounding the stock dies out and the company doesn't improve on the fundamental front, then the stock could drift back down.

Braatz rates Interstate Bakeries a "speculative buy," reflecting the buyout talk swirling around the company. George K. Baum hasn't done any recent underwriting for Interstate Bakeries.