Options: Rumors Spark Call-Buying in MEMC

Takeover rumors propelled the shares higher and led to an increase in call volume.
Publish date:

By Jud Pyle, CFA, chief investment strategist for the Options News Network

Shares of

MEMC Electronic Materials


were up more than 4% today to $16.85, with about an hour left in the trading day. Rumors that the company had received a takeover offer from


in Germany propelled the shares higher and also led to an increase in call volume.

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Looking at the April 20 calls, we find that more than 10,000 had traded in the first 45 minutes of trading this morning. Open interest in these calls is 7,575 according to the


report at


. As the day has worn on, the volume in the calls is now up to more than 15,000. The April 17.5 calls are also seeing heavy activity, trading more than 8,000 times versus open interest of 8,630.

The April 20 call options traded this morning for around 75 cents with the stock near $18.00. At that price, the buyer needs the stock to be above $18.25 to be in the money at expiration. Since that time, the stock has sold off with the rest of the market, and the $20 calls have slid to $0.50.

However, it is worth noting that MEMC Electronic Materials was as high as $22 as recently as November. Any snap back to that level clearly has this call buyer in the black.

This is the second time this week that I have written about call-buying in a name that had takeover rumors. On Monday I wrote about

call-buying in Red Hat

. Seeing an increase in takeover activity would certainly be a welcome event for the bulls as it would indicate that corporate America is getting more bullish on the prospects for the economy.

Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.

Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."