Houghton and Atkeson

Options Trades Point to Possible M&A Activity

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On March 9, we learned Merck (MRK) had agreed to buy Schering-Plough (SGP). With company valuations depressed, it appears corporate merger and acquisition activity may be heating up.

Going into the weekend, Humana Inc. (HUM), SanDisk Corp (SNDK) and Advanced Micro Devices Inc (AMD) call options are active on possible takeover speculation. This is the second week in a row for unusual trading activity on SNDK.

With SNDK, most of the action is concentrated in the March 10 (SWQCB), March 11 (SWQCM), April 10 (SWQDB) and April 11 (SWQDM) Calls. It appears the SNDK April 15 Calls (SWQDC) are being sold as a way to help pay for the lower strike calls being bought and implying that if an acquisition were to emerge, the price might be below $15 per share.

The order flow on HUM is predominately the March 25 (HUMCE) and March 30 (HUMCF) Call contracts. It appears that $35-strike HUM call contracts are being sold.

All of the AMD activity is in the April 3 Calls (AMDDG) in 21,000 contracts. AMD has gone through a long basing action and could be poised to move higher for a variety of reasons including consumers trading down to lower priced PCs with AMD inside.

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