Options Activity Might Be Tipping Off a Deal for Viacom

Viacom was up during the Sept. 18 selloff. Its short-term calls were unusually active. Could a buyout be on the table?

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Sep 21, 2015
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Viacom Class B's (VIAB, Financial) October and November call options were flying off the shelf.

If somebody knows a takeover is going to be announced, that person is not supposed to be able to trade on that information. Many times, though, after a deal is publicly declared, we find that there was heavy "call" option buying on expiration dates and strike prices that seemed unlikely to reach in-the-money status.

We might just have seen a clue to an upcoming corporate event on network owner and movie producer Viacom Class B. The stock had been trending upward ever since bottoming at $36.32 in late August.

Last Friday was a nasty day for the broad market. Most stocks dropped 1% to 3% with many doing even worse. Just before 3 p.m. on Sept. 18, though, VIAB shares were up 80 cents (+ 1.77%). Despite severe late selling pressure, VIAB still closed at $45.68, up 42 cents.

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Large buyers used the general sell-off to accumulate VIAB without elevating the stock as much as would typically be expected.

I sent out an alert in early September, with the stock at $43.98, noting the start of Viacom’s rebound.

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In early September Viacom’s valuation looked compelling, based strictly on fundamentals.

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The option action on Sept. 18 simply added to the appeal. I noticed especially heavy volume in Viacom’s October and December calls. With under a month to go, the October $50s had already traded 13,973 contracts prior to 3 p.m. At that moment the 65-cent, last trade premium was up 124% on the day.

Previous open interest on that option was just 2,135. By 4 p.m. daily volume sat at 14,224, about 566% above the old open interest.

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The November $45 and $50 calls were also quite active. Friday’s final volume on the $45s was more than triple the open interest. Volume on the $50 calls grew to 1,405 by 4 PM, versus previous open interest of 1,556.

VIAB’s 52-week high was $81.23. It traded up to near $88 back in 2013. Earnings and dividends are each higher today than ever before.

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Maybe the positive stock and option action was simply random. Experience, though, says that it might be signaling a potential short-term spike in Viacom. Stay tuned for further headlines.

Disclosure: Long VIAB shares, short VIAB puts