Microsoft bid for Yahoo an options bonanza for some

By Doris Frankel

CHICAGO (Reuters) - Some lucky options traders hit the jackpot on Friday with Yahoo Inc (YHOO.O: Quote, Profile, Research) call options rocketing into the money after software giant Microsoft Corp (MSFT.O: Quote, Profile, Research) unveiled a surprise $44.6 billion (23 billion pound) takeover bid.

The news fed a frenzy of options trading in Yahoo on Friday as roughly 634,000 call options and 241,000 put options changed hands, a combined volume eight times its usual daily level, according to market research firm Trade Alert.

Microsoft Corp offered to pay $31 a share in cash and stock for the iconic Web portal and search engine on Friday, the biggest Internet transaction since the Time Warner-AOL merger.

Yahoo closed up $9.20 a share on Friday at $28.38, while Microsoft finished $2.15 lower at $30.45.

An equity call option allows an investor to buy the company shares at a given price and time, while a put option does the opposite and conveys the right to sell the underlying shares.

Traders and analysts said options volumes in Yahoo had been extremely active this week due to Yahoo's earnings on Tuesday, making it harder to gauge any suspicious trades ahead of the takeover bid. A spokesman for the U.S. Securities and Exchange Commission said it had no comment on Yahoo options trading.

Yahoo options volume surged, notably on the call side, before and after its fourth-quarter earnings report issued after Tuesday's Wall Street close. Speculators often buy front-month options ahead of earnings and then close out the bets after the results are reported.

"But in this case, we saw unusual buying of March $20 calls ahead of the results and those investors held those positions even as Yahoo shares fell some 12 percent after it reported its results on Tuesday afternoon," said Jon Najarian, a founder of Web information site optionmonster.com in Chicago.