Marriott International (NYSE: MAR, Stock Forum) was down about 1% to $19 in the first two and half hours of trading yesterday. But the rumor mills are churning about a possible buyout. The rumor is that Abu Dhabi-based ADIA is in discussions with MAR, offering roughly $30.50 a share in cash.
Call buyers have swooped in as a likely result of this speculation. The April 20 call saw more than 10,000 contracts trade versus open interest of 5,058 contracts. Many of the contracts, which changed hands in a series of small blocks yesterday, went off at a volume weighted average price of 40 cents per contract. It is interesting to note that these calls closed at 30 cents on Thursday. The fact that the calls are higher with the stock lower is a great example of what an increase in implied volatility does to the price of an option.
The May 22.5 call option was also active yesterday. More than 4200 traded for an average price of around 58 cents. Like the April 20 calls, those calls are higher despite the stock being lower, as they closed 45 cents on Thursday. Stock down, calls up means higher implied volatility. Given the chance of a takeout up 50%, that makes intuitive sense. The May options could also be active because the company is set to announce earnings before the market opens on April 23.
Call buying like this does not mean that investors should run out and buy shares. But it is worth noting that there are potentially two catalysts to make the stock jump: a potential takeover or a positive earnings announcement.