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Infineon rumor fuels bullish paper

News reports are fueling takeover speculation in Fairchild Semiconductor and Intersil, and option activity in both chip companies is off the charts.

Bloomberg News reported that Germany's Infineon Technologies is on the verge of buying a U.S.-based semiconductor company for about $2 billion. The article cited unidentified people and said the deal could be announced as early as today.

FCS is up 2.6 percent to $16.40 in midday trading, and ISIL has climbed 0.82 percent to $13.50. Option activity is more than 40 times the full-session average volume in both names.

In FCS, traders sold about 5,600 November 17 puts for $1.15 to $1.50. They're now on the hook to buy shares in the stock for $17 if they fall below that level. But above it, they'll keep the income earned as profit. Their decision to write in-the-money contracts is unusual and will provide strong bullish correlation to the stock up to the strike.

ISIL's traders focused on the upside, snapping up 6,500 September 15 calls for $0.05 to $0.30. They've now fixed the purchase price if shares rally, creating the potential for significant leverage if they move in the right direction. (See our Education section)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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