There has been a slew of takeover offers or ones in the works that I wanted to mention this morning. There may be one or two option trades worth researching but the easy money has already been made. However, it is still nice to see the M&A activity picking up. (All quotes are from Friday’s close)

SanDisk (SNDK, $17.64, up $4.18) had a huge day Friday on news that Samsung Electronics is considering an offer for the company. The Korean semiconductor giant already supplies flash memory chips to SanDisk and figures it is getting a great deal. There were twice as much action in the calls than puts and buyers and sellers of these contracts were targeting the 17.50 and 20 strike prices. The September 17.50 calls (SWQIW) closed at $1.30 while the October 20 calls (SWQJD) closed at $1.00.

UST (UST, $67.55, up $13.55) jumped 25% after Altria Group (MO, $20.95, up $0.29) appears set to acquire the chewing tobacco and wine maker for about $10 billion. More than 31,000 contracts of the September 60 calls (USTIM) were traded as they closed at $3.80. The October 70 calls (USTJN) traded nearly 30,000 contracts and could be a sleeper if we get a higher bid. They closed at 90 cents on Friday.

Lehman Brothers (LEH, $16.20, up $1.03) continues to look for a partner as it seeks to secure a much-needed capital infusion. Although Blackstone Group (BX, $16.43, down $0.31) and Kohlberg Kravis Roberts & Company are said to be looking at parts of Lehman’s business model, I still think Lehman gets and oversees bid. The September 18 calls (LYHIL) closed at $1.05 and could see some action this morning. The October 20 calls (LYHJD) could also be worth a second look and are going for $1.10.

Aside from the M&A activity, don’t forget we still have a “half position” open on Citigroup (C, $19.07, up $0.77) and Wachovia (WB, $16.75, up $1.22). The Citigroup January 20 calls (CAD, $2.10) were profiled at $1.37 and we got 50% on the first half of our position. The Wachovia January 15 calls (WBAC, $4.40) were recommended at $3.00 on 8/20 and half was sold at $3.80 on 8/29.

Citigroup, Lehman and Wachovia should all get a pretty good pop at the open as the Dow looks poised to start the session with at least a triple-digit gain. It would be wise to probably sell the other half of our positions as soon as the market opens. I have a feeling people will be selling into the rally as we go.

Rick Rouse
Rick@OptionsMentoring.com

It’s official. It what was the worst kept secret on Wall Street Friday after the market closed, the government finally bailed out beleaguered mortgage giants Fannie Mae (FNM, $7.04, up $0.62) and Freddie Mac (FRE, $5.10, up $0.15) on Sunday in a move that came much sooner than anyone anticipated. The government’s seizure of Fannie and Freddie could cost U.S. taxpayers nothing or it could cost us $200 billion.

As far as the stock for both companies, the common and preferred shares will still trade but the dividends have been suspended. The shares for both Fannie and Freddie will still trade but both stocks are likely headed below $5. We can expect a ton of class action lawsuits but the move was done to help the U.S. housing market and stabilize the market.

Fannie and Freddie own or guarantee almost half of the country’s $12 trillion in outstanding home mortgage debt and the news is great for would-be homebuyers and homeowners looking to refinance. Mortgage rates are expected to drop from 6.35% to under 5.5% or lower which should attract more potential buyers into the market and hopefully stabilize housing prices. There will be many if’s ,and’s or but’s from here on out and this doesn’t mean we are in for smooth sailing.

What it does mean for us though is that there won’t be anymore option trades on these two companies coming from this corner. I look for the market to have a pretty decent rally on Monday but it remains to be seen if it will be able to hold onto any gains that may come from them. “Relief” rallies are nice but they often fade quickly.

Fannie Mae was down 22%, or $1.54, to $5.50 in after-hours trading on Friday. Freddie Mac lost $1.06, or 21%, and ended at $4.04.

Rick Rouse
Rick@OptionsMentoring.com

Genentech (DNA, $98.53, up $0.68) will not win an academy award for its efforts in “evaluating” take-over offers but give the company credit for at least trying. The “special committee” that has been evaluating the $44 billion bid from Roche said this morning that the deal “substantially undervalues” the company and has been rejected.

This was no surprise as Genentech went on to say it “would consider a proposal that recognizes the value of the company and reflects the significant benefits that would accrue to Roche as a result of full ownership.” The language Genentech is using is sounding like a friendly deal could happen but it’s clear the company is holding out for a $100+ offer.

The August 95 calls (DWNHS, $3.60, up $0.85) continue to do well from an entry price of $1.50 and I mentioned you could ride them through Friday. However, we had set a stop of $3.00 so we were taken out yesterday. The August options expire Friday so make sure if you are still in the trade to close it before the trading session ends.

The September 100 calls (DWNIT, $2.95, up $0.45) were profiled at $0.65 and we have set a stop of $2.00-$2.25. The options closed at $2.50 yesterday so let’s make the $2.25 stop a firm one. I want to allow some room for volatility but I really don’t want the stop to kick in on this one. Genentech continues to set new highs and we want to ride the wave as long as we can.

Meanwhile, we closed half of the ImClone (IMCL, $64.00, down $0.51) August 45 calls (QCIHI, $19.50, down $0.15) at $19.00 on 8/1 and set a stop of $18.00 on the rest. These calls were profiled at $2.40 and our return is something even Michael Phelps would envy. These options also expire this Friday so we will go ahead and just close this one out today.

I believe both firms will get higher offers but as always it depends on timing. If Genentech continues higher from here, the September 100 calls should continue to do well. As for ImClone, I’m not sure if there is another good trade out there for us or not. I’ll take a look at the option chains and run some figures but for now we will just go with Genentech.

Rick Rouse
Rick@OptionsMentoring.com