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Takeover Talk Fueling AHP, Circus Circus Options

You've heard their names mentioned in takeover chatter before, and as the market hits the midway point on another strong day,

American Home Products



Circus Circus

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are being dragged through the rumor mill once again.

On a day when options trading seems scattered, the volume and implied volatilities of both companies are up due to their potential value to competitors. Increased volume in front-month (the current expiration cycle) out-of-the-money options is often used as a marker for takeover activity. In fact, even among companies that aren't takeover targets, near-term out-of-the-money calls found traders' favor.

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In the case of American Home, the implied volatilities are up less than 10%, a sign that investors are getting more skeptical about the takeover potential in the drug industry, especially in the midst of the Glaxo-SmithKline Beecham rubble. "People see now how these things take time to develop," said Paul Foster, the options strategist at


On Monday, someone bought a pile of American Home March 100 calls, which at that point were more than $8 out of the money. By today, the stock price was up 3 9/16 to 93 1/4, and the 100s were still trading heavily with volume over 2,000 at midday. Traders said the order flow seemed split between retail and institutional investors. "It's scattered, noncommittal" in terms of a takeover, Foster said of the AHP activity.

In the casino world, Circus Circus shares, which moved on separate takeover talk in late 1997, were up 1 1/8 to 22 3/8. Out-of-the-money March 25 calls were trading briskly, with volume of almost 1,300 today. The price of the contract had jumped 9/16 ($56.25) to 11/16 ($68.75) as implied volatilities continued their upward move to the 60 level from their typical 40-ish bearings.


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, not a takeout target in any traders' imagination, was up 1 5/16 to 66 1/16 today. The volume on its March 70 calls was heavy -- 2,600 contracts were trading at 11/16 ($68.75), up a teenie ($6.25) for the session.