Volume Spike Investor

There has been some highly unusual options activity today in BCE, Inc. (NYSE: BCE).  Not only that, but it is for current run expiration dates on the puts and calls in June 2008 (expire June 20).

We have seen over 20,000 contracts trade in both the $35.00 June Calls and Puts today, so someone is likely making a bet that the price is heading considerably up or considerably down.  There have been 20,045 contracts of the JUNE $35 CALLS and 20,150 contracts of the JUNE $35.00 PUTS.  The open interest before this was only 5,320 contracts on the calls and 4,360 on the puts.

This represents a bet of more than 2 million shares on a leveraged basis, and this was very likely a straddle.  If we take the “last” trades and calculate the premiums of $1.35 for the calls and $1.40 for the puts, then whoever bought this believes that BCE shares are headed north of $37.75 or south of $32.25 by June 20.

As a reminder, after the Clear Channel deal changed and after so many other mergers have fallen apart, BCE was the “other big merger speculation” play where many thought the terms of a deal would change.  BCE is Canada’s largest telecom operator, and the company asked the nation’s Supreme Court yesterday to hear its case to overturn a lower court’s decision that would likely prevent its $35 billion sale to the Ontario Teachers Pension Fund.

This merger was agreed to in June 2007, so it has been on the books for some time.  Shareholders have also approved the merger with roughly a $43.20 price in US dollar terms.

It looks like the deadline is Friday (tomorrow) and if this is reheard it appears that June 17 would be that date.

It is really easy to see why someone made this bet.  Just on May 22, this stock traded more than 20 million shares and its shares fell more than 10%.  On that day it closed at $33.10.  The day before it closed at $37.83.  On May 13 it was at $39.01.

If the merger truly breaks apart, this one is likely to head much lower towards $30.00.  If the merger is allowed to proceed it could head back up towards $40.00 or even higher.  Then we’ll see if the financing changes.

Jon Ogg
May 29, 2008