Shares of MEMC Electronic Materials (NYSE: WFR, Stock Forum) were up more than 4% yesterday to $16.85 with an hour and a half left in the trading day. Rumors that the company had received a takeover offer from BASF in Germany propelled the shares higher and also led to an increase in call volume.
Looking at the April 20 calls, we find that more than 10,000 traded in the first 45 minutes of trading yesterday. Open interest in these calls was 7,575 according to the Sidewinder report at www.ONN.tv. As the day wore on, the volume in the calls grew to more than 15,000. The April 17.5 calls were also seeing heavy activity, trading more than 8,000 times versus open interest of 8,630.
The April 20 call options traded yesterday morning for around 75 cents with the stock near $18.00. At that price, the buyer needs the stock to be above $18.25 to be in-the-money at expiration. Since that time, the stock has sold off with the rest of the market, and the $20 calls have slid to 50 cents. However, it is worth noting that WFR was as high as $22 as recently as November. Any snap back to that level clearly has this call buyer in the black.
This is the second time this week that I have written about call buying in a name that had takeover rumors. On Tuesday I wrote about call buying in Red Hat (RHT). Seeing an increase in takeover activity would certainly be a welcome event for the bulls, as it would indicate that corporate America is getting more bullish on the prospects for the economy.