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Options Traders Drilling for Next Oil Services Deal


Consolidation fever has already swept through the banking and brokerage worlds, and after yesterday's proposed merger of


(HAL) - Get Halliburton Company Report


Dresser Industries


, it looks like a full-blown case of the M&A bug is hitting the oil services and exploration sector. The trading made for a busy morning in the options markets.

With the Halliburton-Dresser deal on the boards today, the speculation revisited old rumors of

Baker Hughes


making a run on

Western Atlas


, sending the target's shares up and attracting options speculators.

"There hasn't been a lot of volume in those options for the past couple of months," said Kevin Murphy, a

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Salomon Smith Barney

options strategist. "The March 70 puts that traded

about 1,600 contracts were probably close to all the volume that we'd seen lately."

Western Atlas shares rose 3 3/4 to 76 1/2 in early trading today. That kind of jump caught the eye of options players who have chased takeover rumor after takeover rumor for the better part of the past three weeks. As usual, out-of-the-money calls were flying. The March 80 and 85 series traded more than 1,200 contracts each during the first 90 minutes of trading. The March 70 puts traded 1,655 contracts on open interest of just 76.

In early December, Western Atlas was rumored to be a takeover target and its stock went on a similar run. The three potential suitors mentioned at the time were Baker Hughes, Dresser and Halliburton. With the latter two matched up, the whispers turned today to BHI.

The sector has been beaten down, but now it looks like some large institutions are trying to "get long," traders said. The Philadelphia Stock Exchange's

Oil Services Index

(OSX) had fallen more than 30% since November. Today, the OSX was up 6.63 to 103.93, a byproduct of the most solid sign of a consolidation in the industry. A major institution was buying the April 110 calls and selling the April 100 puts, effectively giving them a long position in the sector, and in the meantime, taking in a nice $475 premium for the puts. The position included about 2,000 contracts on each side of the trade, sources said. Volume was strong in the March 105 and 100 calls as well, but came in much smaller lots.

In other options activity:

After two busy days in the pits,

Integrated Process Equipment


options seem to have quieted. IPEC has been rumored as the target of a bid by another semiconductor equipment firm (see


story). The only relatively busy contracts today were the April 22 1/2 calls, which traded 160, and the March 12 1/2 puts, which posted early volume of 200.