AUSWR
The Association of U S West Retirees
 

 

 

Traders Follow Buyout Hunches
By David Enrich
The Wall Street Journal
Friday, March 17, 2006


The year is off to a speedy start on the mergers-and-acquisitions front.  Options traders seem to be betting that more corporate takeovers are in the works.

Among the latest rumored targets: Qwest Communications International Inc. and LaBranche & Co.

A variety of Qwest options saw heavy trading yesterday, with the company's April and July 7.5 calls especially active.  More than 7,200 of the April 7.5 calls changed hands, compared with 8,271 previously outstanding, as their price jumped to 35 cents from 10 cents.  More than 2,000 of Qwest's April 7.5 puts also were traded, compared with open interest of 1,311.  Their price was unchanged at 75 cents.

Yesterday's total call-trading volume of about 13,000 contracts was more than six times Wednesday's volume of 2,045 calls, according to Options Clearing Corp.

Meanwhile, shares of the Denver telephone company rose 3.2% to $7.09.

For the April 7.5 calls to become profitable at yesterday's prices, Qwest shares would have to top $7.80 each by mid-April.  But Frederic Ruffy, an analyst at Optionetics, said traders may simply be hoping to nab a quick profit if the options gain value.

A number of observers attributed the brisk trading to fresh market rumors that a telecommunications company, perhaps Verizon Communications Inc., is poised to bid for Qwest.  The possibility of such a move has gained currency this month since AT&T Inc.'s agreement to buy BellSouth Corp.

Meanwhile, LaBranche's May 15 calls were the subject of unusually heavy trading.  More than 1,000 of the contracts changed hands, compared with open interest of 595.  Their price rose to 90 cents, up 20 cents. Implied volatility -- a gauge of traders' expectations about future swings in LaBranche's stock price -- surged 9%.  The company's shares closed yesterday at $14.14, down five cents.

One possible reason for the trading:  LaBranche is an oft-rumored takeover target.  The firm is coming under pressure as the NYSE embraces an electronic-trading system that relies less on the specialists at the heart of LaBranche's business model.

Write to David Enrich at david.enrich@dowjones.com

http://online.wsj.com/article/SB114255495665300720-search.html?KEYWORDS=Qwest&COLLECTION=wsjie/6month