EMC Options Ignite Rumors

EMC Corporation (EMC) options soared Wednesday after some 280,836 contracts changed hands, which is 6.92x the average daily volume of 40,603 contracts. CNBC’s Dylan Ratigan characterized the market’s sentiment by calling the move “just unbelievable”, since the calls will be worthless on the third Friday in August. The traders behind the move are betting strongly that EMC Corporation shares will be trading above $15.87 by the middle of August.

The sharp move higher in options also sparked a rally in EMC Corporation’s shares on Wednesday. The underlying stock moved up $0.99, or 7.06%, to $15.02 before moving up an additional 3.53% after-hours to $15.55 per share. The catalyst behind the move is a combination of takeover speculation by Reuters and WSJ speculation that the company may want to spin-off its remaining 85% stake in VMWare, which has been valued at a substantial discount to the market price.

EMC Corporation has been a source of speculation ever since it spun-off its stake in high-flying VMWare (VMW), which soared to one of the best performing IPOs ever before collapsing when the economy turned. Still, EMC’s stake in VMWare remains substantially undervalued when compared to the market price of VMWare shares. Many attribute the premium to the lack of adequate liquidity, while others insist that the growth prospects of virtualization warrant such a premium regardless.

EMC Corporation (EMC) and its subsidiaries develops, delivers and supports the information technology industry’s range of information infrastructure technologies and solutions. EMC’s Information Infrastructure business supports customers’ information lifecycle management (ILM) strategies and helps them build information infrastructures that store, protect, optimize and leverage their vast and growing quantities of information.

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