Dynegy faces a takeover drama, and one investor is looking for
volatility to increase.
optionMONSTER's tracking systems detected the purchase of 2,475
March 6 calls for $0.20 and 2,475 March 5.50 puts for $0.05. Volume
was above open interest in both strikes.
The trade, known as a strangle, will make money from the
power-generation stock rising or falling sharply. If it remains
little-changed and closes between $5.50 and $6 on expiration, the
investor will lose the $0.25 premium they paid. (See our Education
LBO veteran Carl Icahn is trying to take the company private for
$5.50 a share. Hedge fund Seneca, which owns more than 9 percent of
company, has resisted the offer as too low. Now Icahn is saying
he'll walk away unless 35 percent of shareholders accept his price
DYN is up 2.4 percent to $5.98 in late morning trading and has
risen 20 percent in the last three months. Icahn's lack of success
may suggest that most investors believe the stock is undervalued at
these levels and expect higher prices. Short interest also
represented about 10 percent of the float on Jan. 14, which could
potentially draw buyers.
Another consideration could be the improving economy, which has the
potential to increase demand for the company's electricity. DYN has
failed to participate in the stock market's rally over the last two
years and is still trading at about the same prices as it did in
Overall option volume in DYN is 9 times greater than average so far
(Chart courtesy of tradeMONSTER)
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