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Trade prepares for buyout of WebMD

WebMD popped after a report of a takeover, and one investor is preparing for the official announcement.

The New York Post said that four private-equity firms are interested in buying the company, which provides medical information online. The newspaper said that Monday is the deadline for accepting an offer, citing people close to the talks.

WBMD is up 7.92 percent to $37.35 on the news, briefly touching its highest price since July. The options activity was especially interesting, reflecting a belief that the stock will push higher in the near term.

A block of 1,425 January 35 calls were bought for $4.50 and an equal number of March 45 calls were sold for $1.50, resulting in a cost of $3. Volume was below open interest in March, so there are two possible explanations.

One is that investor previously owned the March 45 calls and is now rolling down to the lower strike to increase their leverage to a one-time move. The delta on the January calls is 0.70 versus 0.30 on the March contracts, which means they would appreciate more than twice as much if WBMD pushes higher.

The other possibility is that the investor opened a new diagonal call spread . That would entitle them buy WBMD for $35 before January expiration and then obligate them to sell shares for $45 two months later. (See our Education section)

Overall option volume in WBMD is 9 times greater than average so far today, with calls outnumbering puts by 47 to 1.

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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