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Talisman Energy Inc. (USA) (TLM) Call Volume Soars Amid M&A-Fueled Pop

Talisman Energy Inc. (USA) call volume is trading at 35 times the intraday average today

by 7/23/2014 11:50 AM
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Talisman Energy Inc. (USA) (NYSE:TLM) is soaring today on reports that Spain's Repsol SA may offer up a bid for the Canada-based oil-and-gas issue. At last check, the stock was up 10% at $10.84, after being halted once already on the Big Board. Against this backdrop, calls are trading at 35 times the intraday average, and the stock's 30-day at-the-money implied volatility (IV) has shot 32.3% higher to 46.6% -- in the 98th annual percentile -- signifying accelerated demand for short-term contracts.

Specifically, the stock's August 11 call is the most active strike, with 18,693 contracts on the tape thus far. The majority of the positions here have crossed on the ask side, IV has surged 10 percentage points, and volume easily outstrips open interest -- collectively pointing to the purchase of new positions.

Based on the stock's current perch, these calls are near the money. However, in order for the call buyers to profit, TLM must be sitting north of breakeven at $11.37 (strike plus the volume-weighted average price of $0.37) at the close on Friday, Aug. 15 -- when front-month options expire. Gains are theoretically unlimited north of here, while losses are capped at 100% of the premium paid, should the security settle south of the strike at expiration.

Elsewhere on the fundamental front, Talisman Energy Inc. (USA) (NYSE:TLM) is scheduled to report quarterly earnings before next Tuesday's open. If past is prologue, the stock could be poised to pare a portion of today's gains in the wake of its results. After falling short of analysts' consensus estimates in six of the past seven quarters, TLM has gone on to average a single-session post-earnings loss of 0.3%, which widens to 2.1% going out one week. For Talisman Energy's second quarter, Wall Street is calling for a per-share profit of 6 cents -- a 9-cent improvement over last year's bottom-line results.


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