Options Report: Bay Networks Takeover Rumor Makes Comeback
June 04, 1998 4:11 PM
By Steven M. Sears
NEW YORK (Dow Jones)--The Bay Networks Inc.
takeover rumor is back Thursday for an encore
performance a week after this old rumor last inspired
trading.
With the stock up 2 1/4 at 30 3/16 on heavy volume,
traders are buying at-the-money and out-of-the money
call options, which will increase in value if Bay
Networks signs a deal over the weekend.
The June 30 call is up 15/16 at 2 on volume of 9,923
contracts, compared with open interest of 17,330
contracts. The June 35 call is up 1/8 at 9/16 on volume
of 5,415 contracts, compared with open interest of
6,310 contracts.
This time, Northern Telecom is said to be ready to sign
a deal with Bay Network over the weekend. Northern
Telecom declined to comment, and officials at Bay
Networks weren't immediately available for comment.
Last Thursday, Lucent Technologies was supposedly
buying Bay Networks, and Nortel was just another
possible acquirer along with Ericcson Telephone Co.
and Alcatel-Alsthom, which said earlier in this session
that it was buying DSC Communications.
Rumors of weekend deals are often dangerous to trade
on. A lot of money can be lost, or made, by people who
buy and sell options on the assumption that a deal will be
signed. If a deal fails to materialize, the value of the
contracts plummets.
Elsewhere in the options market:
- Tommy Hilfiger Corp., the fashion-design house, is
trading in the options market as if traders expect a
bullish surprise from fiscal fourth-quarter earnings
scheduled for release before the market opens Friday.
After heavy trading in calls in the previous session,
trading has slowed Thursday, but it's still bullish. With
the stock up 11/16 at 67 7/8, there is light activity in the
June 65 and 70 calls. Implied volatility in the contracts is
52% and 50%, respectively, compared with historical
volatility of 45%. Volatility indicates how likely it is that
the underlying share price will move in either direction. |
