Ashland Inc. (ASH) – Call options trading in Valvoline oil-producer more than doubled in value following a coup for the company in announcing the acquisition of privately held International Specialty Products Inc. (ISP). The $3.2 billion purchase of ISP, manufacturer of personal-care and pharmaceutical products is expected to add 50% to annual earnings lifting EBITDA to $1.1 billion. Shares in Ashland surged through the previously established 52-week high following the announcement and are currently trading with an 11% gain at $67.91. Call option buyers made a beeline for the $70.00 strike line scooping up 2,000 contracts following the news. Some lucky investors paid between 50-75 cents for rights to buy stock before contracts expire in June and before prices on call options leapt to $1.50 each. Call options at the October $75.00 strike were also actively traded changing hands at $2.40 throughout the morning.
Viacom Inc. (VIA) – One investor appears to be concerned that Viacom's strong run-up leaves the stock vulnerable to a correction before the year-end. Shares remain marginally higher at $50.11 while our market scanner detects a possible bearish warning on the cable company. Using the December series an investor appears to have paid $1.80 for 10,000 put options at the $45.00 strike while selling the same amount of calls at the $55.00 strike. If you take a look at a chart of Viacom's price performance it's hard to argue at this point that the investor doesn't have a good point. A run-up stretching back to August has seen the stock ascend from $30.39 to $51.93 as recently as early May. But the failure to build further may have the potentially bullish investor a little concerned. A reversal-play using options would see the investor carrying a bullish stock position protect it using put options. On the other side of the trade, the investor picks an exit to allow the stock to be called away should shares ever reach the exit price at expiration. The investor appears to have reduced the cost of such protection to just 50 cents today and will only walk away from the stock assuming it does rise by a further 10% before December expiration arrives.
