HAS - Stock Pop on Takeover Rumor and Call Purchase

Discussion in 'Options' started by livevol_ophir, Jun 27, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    HAS closed at $43 on Friday, up $1.21 from its intra-day low of $41.79.

    <img src="http://2.bp.blogspot.com/_hMry1m7UF10/TCgJTclSPDI/AAAAAAAADN4/tLba9sb4otA/s1600/has_summary">

    At ~10:52 EST the stock hit its low, then abruptly turned higher. The Tick Chart snap is included (<a href="http://livevol.blogspot.com/2010/06/has.html">in the article</a>).

    The company traded over 7,400 options on total daily average option volume of just 1,355. The largest trade was a 3,434 lot Aug 47.5 call purchase about thirty minutes into the stock rise. Calls traded on a 19:1 ratio to puts. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/06/has.html">in the article</a>).

    The news broke of a potential buyer. The company quickly responded:

    Hasbro Inc said it is not involved in any talks regarding a potential sale of the company, despite a news report that said it had been in negotiations for a possible leveraged buyout.

    The No. 2 toymaker s shares rose as much as 9 percent in pre-market trading after the Wall Street Journal reported that it was in early negotiations with Providence Equity Partners to take the company private.

    Hasbro confirmed it was approached by a private equity firm regarding a transaction, but it did not name the firm and its board had decided against pursuing it.

    A source familiar with the matter told Reuters on Thursday Providence has had talks with the No. 2 U.S. toymaker. Providence was unavailable to comment.

    So a "denial."

    The Options Tab (<a href="http://livevol.blogspot.com/2010/06/has.html">in the article</a>) illustrates that the Aug 47.5 calls are mostly opening (compare OI to trade size). You can also see earnings are in that cycle.

    I don't see an OI even in the two thousand range, so the 4,500 total of the Aug 47.5 calls that traded are significant.

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/06/has.html">in the article</a>) illustrates the vols per strike per month. You can see the slightly kinked up skew right on the July 47.5 line. It's a little surprising that the Aug 47.5 calls didn't react more severely. Seems like a call spread could set up if you don't think anything is happening in July.

    Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/06/has.html">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30&#8482 - red vs HV20&#8482 - blue). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

    We can see the stock popped on earnings in late Jan, and since then has steadily risen. We'll see how this plays out, usually just a bunch of saber rattling. But then again, if someone bids for the company, the stock should jump, regardless if the company is "interested."

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:
    http://livevol.blogspot.com/2010/06/has.html