Options Read on Smith International Buyout Talk (SII, SLB)

Posted in block volume, General, Options 
February 19th, 2010

The reports today put Smith International Inc. (NYSE: SII) as a company in talks to be acquired by Schlumberger Ltd. (NYSE: SLB).  If this occurs it would be the largest oilfield services giant becoming even larger.  While we have yet to see a formal deal, Smith shares traded over 42 million shares today, almost 8-times normal volume, and closed up 13% at $37.70.  The stock also hit an intraday high of $38.16, marking a new 52-week high that is just a hair under being up 100% from a 52-week low of $18.43.

With any buyout talk, whether confirmed or just rumor, we always look to see what the stock options market is telling us.  The options trading is never very active in Smith, but today’s options trading was nearly as exponential as the stock.

FEB-2010 EXPIRATION
Calls$    Vol.    OpInt
35.00    726    1,149
Puts    Vol.    OpInt
35.00    1,935    110

MARCH-2010 EXPIRATION
Call$    Vol.    OpInt.
34.00    523    3,656
35.00    2,497    991
36.00    3,886    1,775
37.00    4,952    13
Puts$    Vol.    OpInt.
33.00    711    177
34.00    3,059    22
35.00    3,646    80
APRIL-2010 EXPIRATION
Call$    Vol.    OpInt.
37.00    1,547    1,556
40.00    1,667    188

After a review of the options prices at the close, the implied buyout price would be just short of $39.00.

JON C. OGG

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