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Polaris shares, options up, analysts puzzled
Thu Oct 4, 2007 4:38pm EDT
CHICAGO, Oct 4 (Reuters) - Shares in Polaris Industries Inc. (PII.N: Quote, Profile, Research) rose more than 2.5 percent and saw unusually high option activity on Thursday, but there was little agreement among option participants as to what was driving trading. Opinions varied from speculation that
Honda Motor Co. (7267.T: Quote, Profile, Research) might be looking to acquire Polaris to positioning ahead of Polaris' Oct. 16 third-quarter earnings release, or even investors banking on the U.S. economy avoiding a recession.
When the economy is on a sounder footing, companies like the Minneapolis-based snowmobile and motorcycle maker, which sells high-end products, tend to perform better.
Early on Thursday, option analysts noticed an unusual burst of options volume in Polaris accompanied by call buying, which some attributed to takeover talk.
Polaris shares and options volume are up "on unconfirmed takeover speculation by Honda," said Paul Foster, options strategist at Web information site theflyonthewall.com.
Representatives of Polaris said the company does not comment on market rumors. Officials at Honda did not immediately return phone calls.
In June, Honda was rumored to be interested in buying Harley-Davidson Inc. (HOG.N: Quote, Profile, Research), sending the iconic motorcycle maker's shares and options up. Honda subsequently denied the rumors.
Late on Thursday, 10,130 calls compared to 684 puts traded in Polaris, way above its average volume of 637 contracts, according to market research firm Track Data.
Investors focused on the October calls allowing them to buy Polaris shares at $50 each. In all, 6,383 contracts traded in that series at 50 cents a contract, up 35 cents on the day.
On the New York Stock Exchange, Polaris shares rose $1.28, or 2.83 percent to $46.48 near the close.
These out-of-the-money calls are a cheap shot driven either by an unknown catalyst or the earnings Oct. 16, said Pete Najarian, co-founder of Web site optionsmonster.com.
Some options analysts, however, saw the increased interest stemming from investor hopes that the U.S. economy is set to avoid recession with help from the recent 50 basis point interest-rate cut from the U.S. Federal Reserve.
"Now it appears that perhaps luxury manufacturers such as Polaris are finding investor attention once again," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group in Greenwich, Connecticut.
What was unusual was the heavy amount of call buying in the October $50 series as investors expected that Polaris shares will rise at least another 8 percent by mid-October.
"This could be due to the Federal Reserve's willingness to bail out the economy at all costs and that recessionary fears are heading towards the window," Wilkinson said.
(Reporting by Doris Frankel and Nick Carey)
((Editing by Gary Hill; Reuters Messaging: doris.frankel.reuters.com@reuters.net; doris.frankel@reuters.com; 312-408-8750)) Keywords: POLARIS OPTIONS/
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