Jon "DRJ" Najarian, co-founder of OptionMonster.

Watson Pharmaceuticals ( WPI) is seeing heavy activity in both stock and options amid merger rumors.

Watson's options volume has been averaging 1,700 calls for an entire session, but more than 10,500 changed hands in the first 30 minutes of trading alone this morning. Most of the activity involved the May 30 and May 35 strikes, according to OptionMonster's tracking systems.

The Watson activity has taken place as rumors have circulated about a possible deal between the company and Teva Phamaceutical Industries ( TEVA). Watson is scheduled to report earnings on April 30 before the market opens.

Watson is trading at $30.46 this afternoon, up 2.3% on the day. Teva is trading slightly higher, by 0.64% to $44.26.

The writer owns calls in Watson Pharmaceuticals.

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