Tuesday, March 30, 2010

"What's Driving Heavy Call Volume on MEMC Electronic Materials, Inc.?" Takeover Speculation? (WFR)

Call volume spiked on 3/17, 3/23 and 3/29.
What's Trading has the graphic, it's pretty dramatic, here's their verbiage:
Unusual activity in MEMC (WFR) today. Shares are down a nickel to $14.63 and 29K calls now traded, compared to 5,750 puts. The action includes the buyer of 4500 April 14 – May 15 call spreads at a nickel, which might roll a bullish position from one month to the next (The spread has traded 9000X total). May 18 and April 15 calls are among the most actives. May 15, April 14, and May 14 puts are busy as well. Implied volatility is up 3 percent to 43.5, but with no obvious news to explain the jump in WFR options activity Monday morning.
Schaeffer's Research commented after the 3/23 spike:

Despite a rather lackluster showing on the charts, option traders are buying calls on MEMC Electronic Materials, Inc. (WFR) like they're going out of style. On Tuesday alone, for example, speculators on the International Securities Exchange (ISE) bought to open 6,358 calls on WFR, compared to just one lonely put that was purchased.

WFR price chartPlus, the equity has racked up a 10-day ISE call/put volume ratio of 54.62, as traders have bought to open nearly 55 times more bullish bets than bearish during the past two weeks. This ratio ranks higher than 98.3% of other such readings taken during the previous year, indicating that option players on this exchange have almost never shown a greater appetite for calls over puts.

In the same bullish vein, WFR's Schaeffer's put/call open interest ratio (SOIR) currently stands at a 52-week low of 0.23, as short-term speculators are more optimistically aligned toward the shares now than at any other time during the past year.

In fairness, it's possible that some of these calls were purchased to hedge short stock positions. Short interest on WFR increased by 7.7% during the past month, and these pessimistic positions now represent a respectable 6.9% of the security's float....MORE

Every two or three months WFR is rumored to be an acquisition candidate, here's the rumor in January, 2010. Here's the latest via Forbes:

MEMC shares up on takeover chatter - flyonthewall.com

...Shares of MEMC Electronic Materials Inc, which makes silicon wafers for the semiconductor and solar industries, rose as much as 14 percent on speculation that the company received a takeover offer from German chemicals group BASF.

However, analysts said they doubted there was such a proposal and MEMC is not seen as an acquisition target.

'At these price levels, I think the stock is rich, the valuation is high. I think it's primarily a rumour,' Hapoalim Securities USA analyst Gordon Johnson said by phone.

MEMC is an attractive target at $10 to $12 from a valuation perspective, Johnson said.

MEMC and BASF were not immediately available for comment when contacted by Reuters.

Shares of the company pared some of their early gains and were trading up 6.3 percent at $17.12 in afternoon trade on the New York Stock Exchange.

'I don't think that MEMC is looked at as an acquisition target because its key end markets are facing significant pressure and I think that any buyer who knows these markets will know that MEMC will reach a lower price later this year,' Johnson said.

The company's stock has fallen 80 percent in the last one year.

'It is a rumour, it is very hard for us to view this as a strategic situation,' said Ben Pang of Caris & Company.

'MEMC Electronic shares and its call options are active on takeover speculation,' said Frederic Ruffy, options strategist at New York-based Web information site WhatsTrading.com....