The Wall Street Journal-20080111-Quick Countrywide Deal Is Expected by Traders
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Quick Countrywide Deal Is Expected by Traders
Options activity suggests traders are expecting rapid developments in the Countrywide Financial Corp. saga.
Bank of America Corp. is in advanced talks to acquire the troubled mortgage-banking company. Shares of Countrywide Financial rose more than 51% to $7.75 in 4 p.m. composite trading on the New York Stock Exchange following the report.
The January contracts saw most of the action, which indicates that traders want to see something soon, since the contracts expire on Jan. 18.
"There's more trading in January than in February," said Michael Schwartz, the chief options strategist for Oppenheimer & Co. "The options market is expecting this takeover to happen before expiration."
The January 5 calls, which give holders the right to buy Countrywide Financial at $5 a share when the contract expires, saw volume of 27,400, or more than double the open interest.
More than 62,800 January 7.50 calls traded, versus open interest of 33,030, and more than 83,800 January 10 calls changed hands, compared with open interest of 43,100.
Those holding February 12.50 calls saw the value of their contracts rise in value by 15 cents to 35 cents a call. Nearly 11,400 contracts traded, or more than double the open interest. But more than 7,000 calls traded before the news came out.
In other news, Capital One Financial Corp. said its 2007 earnings would disappoint because of increased loan delinquencies and additional legal reserves in the fourth quarter. Its shares fell 43 cents to $42.92 on the Big Board.
Traders snapped up new issues of January 40 calls, with nearly 1,100 contracts traded, versus open interest of 600.
More than 5,700 February 50 calls changed hands, versus open interest of 2,800.
Overall, 38,400 puts and 16,100 calls traded.
