Traders are piling into options that profit should Dell Inc. (DELL:US) climb more than 11 percent in a bet that a potential buyout for the third-biggest maker of personal computers will happen above $14 a share.
The number of bullish contracts that give the right to buy Dell stock for $14 a share by May surged this week, with the open interest increasing to 55,810 yesterday from 8,288 on Jan. 14, according to data compiled by Bloomberg. That was the biggest increase among all Dell options. The calls, which expire on May 17, rose 4.4 percent to 24 cents at 12:03 p.m. in New York today, meaning the stock will have to rise above $14.24 before the buyers of the contracts will profit.
“The options market is saying there’s a real chance the deal could be materially above the top of the range being widely reported,” Nelson Saiers, who oversees $600 million as chief investment officer of New York-based hedge fund Saiers Capital LLC, said in a phone interview. “People doing these trades genuinely have to believe there is a real shot this deal is above $14 plus the premium they are paying.”
The company is in buyout talks with private-equity firms, people familiar with the matter said Jan. 14, sending the shares to an almost eight-month high. Silver Lake Management LLC and partners are close to lining up about $15 billion in funds for the deal, which could be announced as soon as Jan. 22, people with knowledge of the matter said Jan. 17.
The stock slipped 0.1 percent to $12.81 today and the shares have traded below $14 for the past eight months. CNBC reported earlier this week that if a deal is done, it would be priced at $13.50 to $14 a share, citing people familiar with the situation that it didn’t identify.
The May $14 calls and February $14 calls were the most active yesterday and eight of the 10 most-traded Dell options were bullish (DELL:US), data compiled by Bloomberg show.
The May contracts were also among the most-traded in the overall U.S. stock-options market yesterday. Outstanding February $14 calls rose to 59,842 yesterday from 17,593 on Jan. 14 for the second-biggest gain among the stock’s options.
David Frink, a spokesman for Dell, declined to comment on the options trading.
Dell, which lost almost a third of its value last year, is struggling amid competition from tablet makers such as Apple Inc. Going private may give the company more room to overhaul its corporate structure and focus on data-center equipment instead of PCs. A buyout of Dell would be the biggest since the financial crisis.
Bullish traders have sent the number of outstanding calls (DELL:US) to their highest level in almost three years relative to puts. The ratio of calls versus puts climbed to 1.72-to-1 on Jan. 15, the most since March 2010, data compiled by Bloomberg show. February $14 calls were the most-owned among all of the stock’s contracts, followed by May $14 calls.
Implied volatility, the key gauge of options prices, for one-month contracts closest to Dell shares closed at 43.03 yesterday after reaching 59.07 on Jan. 14, the highest level since January 2010, according to the data.
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