Monday, December 6, 2010

Verigy (VRGY) - Huge Trades in Takeover Seem... Lucky?

VRGY is trading $13.00, up 42.1% with IV30™ up 38.7% on takeover news. The LIVEVOL™ Pro Summary is below.

Here's our little news snippet:
Announced on 12/06/2010
Verigy Ltd. (VRGY ) announced on Monday December 6, 2010 that it had received an unsolicited bid from Advantest Corp. (ATE) for $12.15 per share in cash. Verigy has a pending transaction with LTX-Credence (LTXC ). In the LTX-Credence (LTXC ) - Verigy Ltd. (VRGY ) merger proposal, LTX-Credence (LTXC ) shareholders would receive .96 shares of Verigy Ltd. (VRGY) per LTX-Credence (LTXC ) share.

There was some rather large order flow on 11-18-2010 (Thursday before expo). First, the company's average is included below:

So, basically this company doesn't really trade, it averages 279 calls a day and 359 contracts in total (daily)... But on 11-18-2010:

Yeah, see the green numbers. 3,141 Dec 8 calls (on zero open interest) and 2,297 Dec 9 calls on 75 OI. The company has averaged 279 calls traded a day. The largest OI on Nov 18th was 123 in the Dec 9 puts.

The next day, another 500 Dec 8 calls traded and were entirely (100%) long opens.

So ~2000% of avg. daily volume traded on Nov. 18th long in the calls and three weeks later a takeover. That turned a ~$250,000 bet into ~$2.2 million. Prior to 11-18-2010 (when 5,439 calls traded) there wasn't a single day when more than 2,200 calls traded over the 6 months prior...

Before making judgement, we can note that on and around 11-18-2010, the stock was down ~10% on news of their own takeover. So, one could argue that the stock was depressed and someone swooped up some calls.

To me, 20x average volume in front month calls (it was one day before Nov expired) doesn't feel like an investment that the stock will rally.

That's one hell of a lucky hem...

This is trade analysis, not a recommendation.

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