Takeover File

Here are two updates and two new ideas for the takeover file.

Potash Corp. (POT)
Canada has issued a provisional rejection of BHP's $130 offer to buy POT leaving BHP to consider alternatives, one of which is to withdraw the offer entirely. Since the Implied Volatility Index Mean has declined from 37.22 last week to 29.66 on Friday the declining options prices are suggesting the probability of a higher BHP offer has also declined. The current Historical Volatility is 21.30 and the IV/HV ratio is 1.39 with a bearish put-call ratio of .7.

Since the original BHP offer, POT reported quarterly earnings and upgraded guidance. In the event BHP withdraws its offer, POT will most likely come under pressure from the stockholders to support the stock price. Accordingly consider this put sale idea that would result in a long position in the event the stock closes below 125 at the December expiration.
 

Pride International Inc. (PDE)
Originally discussed here consider adding this put sale.

PDE continues to be the subject of takeover rumors and the Wall Street Journal reported they have been talking with Ensco PLC (ESV) 50.14. Previously there were rumors SeaDrill Ltd. (SDRL) 33.29 would increase their existing ownership stake in the company.

Use a close back down below the last pivot at 30 as the SU (stop/unwind).

Massey Energy Co. (MEE)
Coal mining company MEE was up 4.73 Friday on a Wall Street Journal report that the company is considering a takeover offer from Alpha Natural Resources Inc. (ANR) 44.45. When metallurgical coal prices are high M&A activity tends to heat up in the coal sector and Massey has more than 1 billion tons of metallurgical coal reserves. 

Option prices were increasing along with the stock price, as MEE showed up as number three on our proprietary "Top 5 stocks with greatest IV change from yesterday" list increasing from 47.97 to 54.03, a 12.64% increase. The current Historical Volatility is 46.45 for an IV/HV ratio of 1.16 and a put-call ratio of .5.

With a decent edge, this position would result in a long position under 40, if assigned at the December expiration, in a company will good fundamentals.

Hecla Mining Co. (HL)
Silver did extremely well after the QE2 announcement rising 8% for the week from 24.73 to 26.72, basis cash. Hecla went from 6.89 to 7.93 for a gain of 15%.

It owns a 100% interest in the Lucky Friday mine located in northern Idaho and a 100% interest in the Greens Creek mine located on Admiralty Island, near Juneau, Alaska.

In addition, it was number five on our on our proprietary "Top 5 stocks with greatest IV change from yesterday" list increasing from 62.96 to 69.49 up 10.37%. Further, there were seven call option series with volume more than 2,000 contracts, with the December 7 contract trading 21,318 and the December 8 at 26,676. The high volume in multiple options series leads us to speculate there could be more going on than just the increase in the silver price.

The current Historical Volatility is 51.06 with an IV/HV ratio of 1.36 and an extremely bullish put-call ratio of .15.

For those who may want to speculate there is more than just the increase in silver prices going on here are two ideas to consider. The first a December call spread.
 

Use a close back down below 7 as the SU (stop/unwind).

All of the suggestions above are based upon last Friday's closing prices using the mid price between the bid and ask. On Monday, the option prices will be somewhat different due to the time decay over the weekend and any price change.

Summary
With the S&P 500 Index breaking out above the April high there is a good chance it will continue up to the original upside measuring objective from the March 2009 Head & Shoulders Bottom. However, some sectors appear overbought so there could first be a correction.