OPTIONS REPORT:Genzyme Takeover Rumors Meet With Some Skepticism

By Brendan Conway Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--For one big options trader, the takeover chatter on Genzyme Corp. could be just that--chatter. The Cambridge, Mass., biotechnology company has been the subject of buyout rumors recently, with French drug maker Sanofi-Aventis SA one oft-mentioned potential buyer. The stock has responded warmly, adding 30% from its July 16 close and touching a new 52-week high Tuesday, before trading down 14 cents, or 0.2%, to $67.55 recently. Genzyme officials could not be reached for comment on the rumors. Options trading on Genzyme has been elevated the last few sessions and it surged to nearly seven times the normal volume Tuesday after one big trader readied for the stock's potential return to levels last seen before the takeover speculation. Specifically, the trader sold about 7,000 October $75 Genzyme call options while buying a "put spread" in the company's $50 and $65 bearish puts that expire in January, according to OptionMonster. A call conveys the right to buy shares and typically signals bullish sentiment, while puts convey the right to sell. An investor who sells the call and buys the put spread doubts the stock can hit $75, is protected against moves under $65 and reaps maximum profits in the event that the stock drops beneath $50 by January expiration. "This trader is positioning for the possibility that the takeover may not go through," OptionMonster analyst Chris McKhann said. The move works well for long stockholders seeking to lock in the shares' recent gains, and options analysts said it could be the work of such an investor. But a trader who is skeptical of the Genzyme takeover rumors and is speculating against its chances could also take this approach. By focusing on October and January contracts, the investor has allowed time for the Genzyme story to play out. Wall Street is mooting the chances that other suitors could appear, with Sanford C. Bernstein & Co. analysts among those speculating recently that GlaxoSmithKline PLC could enter the fray. Bernstein's analysts wrote last week they see any Genzyme takeover as "more likely to be a slow than fast process." Options traders elsewhere continued to ready for the remainder of earnings season, with some of the day's notable trading crossing in companies soon to report such as Pitney Bowes Inc. and Akamai Technologies Inc. In mail and business solutions company Pitney Bowes, which reports on Aug. 3, options traders focused on near-term August $24 puts, sending volume to ten times normal levels, according to Trade Alert. In this case, some of the activity appeared to be purchases of the contracts, according to WhatsTrading.com analyst Frederic Ruffy, potentially by shareholders seeking to lock in recent gains. At afternoon prices, buyers of protective options pay 60 cents and make money on drops in the shares below $23.40. Pitney Bowes shares gained 2 cents, or 0.1%, to $24.74 recently. Some of the trading in $24 puts may also have been the work of sellers, in which case these investors suggest confidence the stock can remain above $24 by mid-August expiration. In Internet company Akamai, due to report on Wednesday, trading leaned heavily to call options, with investors picking up more than 22,000, compared to about 5,000 puts, according to Track Data. Notably, one trader appeared to "roll" out of a moderately bearish position into one that affords the shares more room to rise, according to ONN.tv. The stock recently lost 93 cents, or 2.1%, to $44.44. -By Brendan Conway, Dow Jones Newswires; 212-416-2670; brendan.conway@dowjones.com (END) Dow Jones Newswires July 27, 2010 15:30 ET (19:30 GMT)